Its that time of the country’s political life cycle, when the various political parties, especially the opposition NDC and the governing NPP are out and about, criss-crossing the country seeking to sell their manifestos to the electorate in order to win their votes on December 7. In the first of two articles, Suleiman Mustapha assesses the economic policy options of both parties.
A first glimpse of the governing New Patriotic Party (NPP) manifesto appears decidedly modest, even unremarkable. It is so by design. It is intended to reassure, whereas the opposition National Democratic Congress’s (NDC) manifesto, launched on September 7, is meant to provoke an ambitious drive to leapfrog the country.
Whoever wins this year’s presidential election will be tasked with managing an economy in dire straits, the COVID-19 pandemic having derailed Ghana’s economic rebound since the second half of the previous decade.
This year, real economic growth will be inconsequential, even as the fiscal deficit hits a long-term high and the public debt balloons, all of these as a result of the COVID-19 pandemic.
However, none of these have dissuaded either of the two political parties from promising accelerated economic growth and development if elected.
To be sure, both parties’ manifestos offer similar fundamental objectives with regard to macroeconomic management although the strategies to achieve them differ somewhat. Both parties have committed to accelerating the economic growth rate, and keeping a tight rein on the fiscal deficit.
Both parties are aiming at a positive primary balance too, along with a lowering of inflation and consequently interest rates. They both also promise a merchandise trade surplus.
Instructively, however, neither of the parties’ manifestos is forthcoming with regard to quantitative targets for these key macroeconomic performance indicators.
Here, it is the NDC that opens itself to the most consequent criticism because the NPP, being the incumbent, can point to government’s medium-term targets as its own. Furthermore, the very nature of the NDC’s promises with regard to fiscal policy requires quantitative figures to give it credibility, but fails to do so.
This is because the NDC is promising many tax reliefs, which cumulatively are clearly impossible to implement. It is instructive that the party, in response to obvious criticism of its tax plans, admits the costing is not yet ready.
To be sure, the economic reasoning behind the tax breaks that the NDC is promising is sound. Simply put, it is extreme supply side expansionist economics, which forgoes public revenues in favour of the private sector, which then reinvests those savings into expanding their activities, thus growing the economy, providing job opportunities and ultimately, tax revenues in absolute terms, even though at a lower tax rate.
This is ironic in that this is the very same economic policy stance the NPP promised when it was in opposition during the run-up to the 2016 elections, a time when the NDC, under the guidance of the International Monetary Fund (IMF), was doing quite the opposite, rolling out more taxes for higher revenues as part of a wider demand management stance.
The NPP has since realised the impracticability of the unbridled supply side economics and has pulled back somewhat, even as the NDC has reinvented itself as expansionary economists rather than the demand managers they were four years ago.
To be sure, the incumbent government’s manifesto basically promises more of its first term macro-economic stance, if it gets re-elected.
Five per cent
Fiscal consolidation, which has been hard hit by the impact of COVID-19 will be resumed, with this year’s targeted at extraordinary 11.4 per cent fiscal deficit cut to 9.4 per cent in 2021 and returned to under the statutory five per cent by 2023.
However, unlike with its 2016 manifesto, the electorate will judge this one from the NPP with a great deal of circumspection. Its promise to stem cedi depreciation has been less than successful and its assurances of fiscal consolidation have not been fully realised, even before the impact of COVID-19 began to be felt — indeed, since hurriedly exiting the IMF programme, the fiscal deficit has risen rather than fallen, a fact partially masked by the government’s tactical rebasing of the GDP computations.
The NDC, on the other hand, promises ‘fiscal responsibility’ but without any quantitative targets. Actually, its proposed fiscal policies will result in an inordinately high fiscal deficit because the promises centre on tax relief for just about everyone.
Again, the NDC promises to stop applying personal and corporate income taxes on small businesses altogether while reducing the corporate tax rate for medium-sized companies from the current 25 per cent to 15 per cent.
Startups enterprises employing up to 20 people would be exempt from corporate income tax for the first year, while medium- sized firms employing more than 20 people would enjoy exemption from corporate income tax for two years.
The idea is to provide them with more re-investible income to spur faster business growth and generate more employment avenues.
The NDC’s expansionist stance also includes exemptions from import duty for commercial vehicles and other equipment imported for commercial, industrial and agricultural activities.
Revert to levies
To add some degree of sheer populism to this, the NDC wants to revert to the levies attached to VAT being ad valorem rather than straight levies as introduced by the NPP in a back door initiative which effectively increased the incidence of VAT from 17.5 per cent to 18.5 per cent.
Also the NDC seeks to win the support of spare parts dealers by scrapping the Customs (Amendment) Act 2020 (Act 1014) which bans the importation of salvaged vehicles as part of the wider effort to attract international car manufacturers to establish assembly plants in Ghana.
The snag, as the incumbent NPP has discovered since taking office, is that a government cannot finance its activities during the policy transmission lag period between when the tax relief policies are effected and when the ultimately bigger business volumes result in bigger tax revenues.
It is somewhat incongruous that the NDC is proposing a fiscal policy stance that it was at great pains to explain why it would fail when it was proposed by the then opposition NPP four years ago — and which indeed has proved impracticable since, forcing the incumbent administration to do a U-turn on much of it.
Instructively, the NPP itself, with the benefit of experience has now turned its focus towards expanding the tax net rather than narrowing it, by bringing the informal sector into the net through a combination of data provided by the National ID card initiative and digital addressing, and leveraging the use of tax identification numbers as a prerogative for accessing public goods and services.