The economy is picking up after going through some turbulent times between 2012 and last year. The Editor of Graphic Business (GB) interacted with the Finance Minister, Mr Seth Terkper (ST), on how we got here and the way forward.
GB: Someone will ask; how did we get into the fiscal situation we found ourselves in over the last three to four years?
ST: In 2012, we started the campaign to stabilise the economy and the Nigerian gas pipeline was blown. It took two and half years to fix that pipeline and till date, supplies from Nigeria to Ghana have not been stable.
During this period, gold and cocoa prices were just going up in the roof. From 2011 to 2012 thereabout, the prices started slowing down; gold first, then cocoa and crude oil came in around 2011.
So, in reality, the economy was taking on all these shocks in addition to having to pay arrears, clear subsidy and all that and people are still not appreciating that.
The economy is not growing negatively as is happening in some countries now even growing beyond sub-Saharan Africa, and also with a GDP base, which has expanded by 60 per cent and oil and gas increased it further to 14 per cent.
And for me, the critical thing is that why in all of this,we didn’t experience negative growth.
GB: With the stability achieved, thanks to the consolidation, what will be the government’s next focus?
ST: Manage prudently and focus on pipeline projects, develop tax measures and manage expenditure but more important, we have been able to clear a lot of waste in the system.
GB: So how much savings have we made?
ST: I do not know but we are not really quantifying the savings. I can give you anecdotals. For intsance, in the fuel subsidy area, for instance, we were faced with a liability of about say GH¢650 million and we ended up paying about GH¢350 million as a result of the audit.
If you look at the ghost names that we have substantially reduced through the electronic means, that is substantive savings.
You can look at it from another way that what is petroleum subsidy and who it is benefitting? Is it the well-to-do with their big cars or the average man?
From growth to cedi stabilisation, you see that the indices are beginning to move up.
But you will see that the crude oil price shock; last year, we used US$99 per barrel but ended up revising it to US$58. This year, we used $53 but we are going to be revising it, probably to around $35 or $40. The benchmark revenue should have been US$86 dollars.
GB: Since the beginning of the year, we have seen the cedi performed well against the major foreign currencies. Can we attribute it to the Bank of Ghana’s currency management approach?
ST: The currency management is going on well without a doubt, that’s one factor. Another factor is that as we consolidate, the government is living within its means. The when we suffered the commodity shocks. What it meant was that it hit our reserves because the inflows were going down and then the Bank of Ghana had to fall on its reserves. All of the sudden, we were not getting the inflows to meet the demand and as a result, it affected the cedi negatively.
However, the depreciation has a corrective effect because the price of the dollar went up.
GB: Businesses and people complain of having to pay many taxes. What informed the decision to revise the tax laws and introduce more taxes?
ST: In doing fiscal correction, you look at revenue and you look at expenditure and in this case, tax revenue and tax expenditure. In doing so, you look at taxes critically.
Secondly, the period of austerity coincided with the revision of all the tax laws. We started with the Value Added Tax (VAT) which was enacted in 1998.
In all these, we were just doing amendments prospective – the Income Tax Act, 1998 and the Customs Act, which is actually a 1985 law, a PNDC law.
When you revise an Act that was created in 1998, you bring in new things but it coincided with austerity and we did not revise the laws because of austerity; it was a programme that we started in 2009 with the enactment of the Ghana Revenue Authority Act.
We created a new excise law. It used to be embedded in the VAT law but we created a new law to make it more explicit.
The last one, which will go to Parliament soon, is the Revenue Administration Act. In it, we will separate the administration.
What this means is that we are doing a lot of revamp. Some of the withholding taxes, which we gave, became an issue, but withholding is withholding.
Those who file their returns get tax clearance certificates and so it is not every enactment which we made that was for correction. The tax clearance was to revive the old law and we also did transfer pricing regulation that we never had.
Most taxes, especially the indirect taxes are expenditures; many businesses file their returns so we do not claim them back.
That has nothing to do so much with increases. The final point I want to make is that, if you do not adjust tariffs, people are looking at the tariffs as taxes but they are not.
GB: So you are saying that the revisions to taxes were mainly as a result of a revision to the tax laws?
ST: The tax and expenditure measures were for correction and meant to enhance our laws. We cannot be operating 20 and 30 years old laws.
The economy will not grow that way. I am also saying businesses should file their returns for certain tax benefits.
Although we have increased the tariffs, if you take the tariffs plus the special ones, the period of subsidy resulted in high debt for us.
Even that increase and that cost is lower than using a generator, so although the tariff covered a lot of grounds, we say we are going to recover the grounds where we started the adjustments.
We are used to low electricity tariffs, and that is one benefit of the correction that you get realistic tariffs to keep the power running at a slower pace.
We are also going into the gas era, using our own gas, and we have to pay for it. We need to do this in order that we can stabilise and as we project, we can export power.
This year is definitely going to be a better year. The only setback we have is the crude oil price which has started recovering. If it recovers too much, it will affect transportation.
GB: Utility tariffs adjustment is an issue of concern for both consumers and the government. What is your take on that?
ST: In the case of power consumption for the Volta River Authority (VRA) and the Ghana Grid Company (GRIDCo) and others, there are elements of tax in there. Any consumption must have an element of tax in it.
VRA was not recovering its cost for the tariffs, ECG was not covering its costs from the tariffs and when they do not recover the cost from the tariffs, then it comes as subsidy.
The subsidy was growing and we were not able to pay. Some subsidies may be justified but others are not.
Power is need for manufacturing and others and if you (the government), is not paying, people should pay.
The tariff is a correction and the electricity tariff in particular. When we were doing the automatic adjustments, we had to stop the automatic adjustments for utility tariffs and power in particular. Why because, the gas was not flowing. We were not producing power. But going forward, we are going to be adjusting.