PRESS STATEMENT ON 2011 BUDGET
30TH NOVEMBER 2010
The structure of this brief analysis highlights the timing of the budget, participation, format of the budget, content of the budget in terms of the macroeconomic stance, the real and social sectors.
The Centre’s analysis of the 2010 budget assesses the extent to which Ghana has fulfilled its obligations to its citizens in terms of basic rights using the National Constitution, ECOWAS/AU regional instruments and the International Human Rights instruments as measuring yardstick.
The Integrated Social Development Centre (ISODEC) commends Government for again honouring article 179 of the 1992 constitution. That is for being able to present to the people of Ghana budget estimates for 2011, one clear month before the end of the 2010 fiscal year.
2.0 MACROECONOMIC ENVIRONMENT
Although government has been able to achieve some level of stability from the fore front of inflation and exchange rate, it is still evident that the 2011 budget has the agenda of pursuing low inflation targeting and low budget deficit which is inimical to employment. A key purpose of macroeconomic policy is to ensure not just macro stability, but more importantly to achieve the full potential of the economy by ensuring sustainable, broad-based growth and the redistribution of income to increase the elasticity of poverty reduction in relation to growth that ensures that the social framework of norms, rules and values are protected. This can be done by ensuring that fiscal and monetary as well as exchange rate and employment policies do not lead to too high or too low a budget deficit/inflationary target.
From the rebasing, it is obvious that the economy is beginning to under-go a structural change with the service sector leading in growth. The type of services leading to growth in the real sector should be interrogated since it is important for structural transformation. Growth led by retail, wholesale and hotels is not going to help reposition the economy on a sustainable growth path. On the other hand, an increase in knowledge based services would promote more outsourcing leading to growth in other sectors.
3.0 TAX PROPOSALS
The Centre is of the view that taxation enhances internal revenue mobilization and re-enforces the social contract between governments and the citizenry. The 2011 budget has some laudable initiatives to plug the leakages in the tax system such as the gift tax, the import duty on rice and poultry products, among others. The center commends Government for these tax initiatives.
However, we are wary of taxes that will place additional burden on the poor. One of such taxes that in our view will cause hardship for the poor is the increment in the TOR Debt Recovery Levy, which has the likelihood of increasing transport fares. We therefore request Government to re-think the decision to increase the levy. It is also our view that without a detailed and comprehensive account on what had accrued in the fund since its introduction in 2003 and the expenditure to which the fund had been put to; this will be unfair to citizens. We therefore call on government to review the decision to increase levies for the fund and to account for the collection and use of the funds since it was instituted.
Overall ISODEC hopes government’s fiscal policy management which features a bold domestic resource mobilization through taxation will enhance citizenship participation in governance and the demand for accountability.
We also observe that there is the lack of disclosure of tax exemptions and subsidies provided various companies as these constitute forgone revenues for the year that must be transparently disclosed to citizens. An example is the subsidies paid to mining companies for electricity.
4.0 WATER SECTOR
The intention by government to improve rural dwellers’ accessibility to quality water is laudable but we are also very much aware of the failure of Government to deliver quality and accessible water as targeted in 2010. For example only 4.3% and 1.5% of boreholes and small community pipe systems respectively; promised by Government for 2010 had been constructed at the time of reading the 2011 budget. This low level of budget performance is unacceptable and immediate steps need to be taken to improve budget performance.
Our analysis of the incidence of public expenditure reveals that total water subsidies tend to benefit the non-poor than the poor. It is therefore important for government to invest in rural water for improved targeting to the poor.
We commend government for continuation of pro-poor programmes such as the school feeding programme and capitation grant, free school uniforms etc. We also commend Government for the building of 175 schools to replace schools under trees. Against this demonstration of commitment, we ask Government to increase the number of planned schools to be built for schools under trees annually to 600 schools.
We find it refreshing that Government intends to continue with the pro-poor interventions in the education sector. Nevertheless it is important to note certain concerns that have arisen in the implementation of the programmes. We call for special attention to be paid to deprived schools in the allocation of the capitation grant.
Our analysis of the incidence of public expenditure in the education sector shows that subsidies for primary education tend to benefit the poor more as compared to the non-poor. This is so because a higher proportion of primary age children are from poor backgrounds. On the other hand the non-poor benefit more from subsidies at the secondary and tertiary levels.
Ghana still faces immense challenges with the health MDGs whilst it is feared that we will not attain them as a country. In this direction we express delight about Government’s intention to accelerate implementation of the Community Health-Based Planning Services (CHPS) strategy with the provision of thirty new CHPS health facilities. It is however our call that these facilities be equipped with midwives and basic equipment to offer quality care to pregnant women in communities.
The Centre welcomes government’s plan to implement the national child health policy. Though we expect specific details on what exactly Government intends to implement with regards to the policy in 2011. This needs to be provided for effective monitoring by citizens.
Further, we expect to see clear and concrete indications of Government’s commitment to universal access to health care services at the point of delivery. Government needs to indicate clearly which areas of our existence, as a people, urgently requires our taxes. A lot has been said about the NHIS - as only bearing the label of insurance whilst in reality the bulk of the fund is constituted by levies from all citizens – non-poor and poor, but with the poor being denied access because of their inability to afford annual premiums.
Our analysis of the incidence of public expenditure in the health sector reveals that health centres (primary health care) expenditure is almost even for all in the various income groupings. However, hospital expenditure appears to be very regressive favouring the non-poor who are able to afford. The National Health Insurance Scheme will be one area if effectively structured can help ensure that the poor have access to good and quality hospital services.
7.0 SOCIAL PROTECTION
A major route of poverty reduction in Africa is decent employment, a concept that encompasses the quality of employment-as rooted in production and secure jobs that provide adequate income and reasonable work conditions-and the quality of employment. Decent employment strengthens the link between economic growth and aggregate poverty reduction.
The key problem confronting us today is that the ongoing financial globalisation appears to be primarily redistributing shrinking investment funds and limited jobs across countries instead of accelerating capital accumulation globally. The source of macroeconomic instability currently is not in product markets but in assets markets and so the main challenge for policy makers is not inflation but unemployment and financial instability
8.0 PETROLEUM SECTOR
On the petroleum sector, the Centre commends Government again for de-emphasis on petroleum revenues in favour of internally generated revenues. This is good for expectation management and sector-wide development. Petroleum revenue expected to accrue to the Country in 2011 budget is estimated at GH¢ 584.0 million, however, the budget fails to tell Ghanaians the target price used to arrive at this estimate, We also know the Government is embarking on petroleum price insurance as in hedging, however the budget is completely silent on this very important financial instrument that will have effects on the country’s petroleum resources.
On the Petroleum Bills, the budget makes reference to the passing of the Revenue Management, Exploration and Production bills without same emphasis on the Local Content and Participation bill. It is regrettable that government does not put same premium on the Local Content, local participation and value-addition policy and Law. It is our considered opinion that converting our petroleum resources into lasting benefits rests on how we design, implement/enforce local content, local participation and value-addition if we are not to repeat the dismal performance in the solid mineral and timber sectors. We expect petroleum to act as a catalyst for transforming the nature and character of the national economy, meaning taking the economy to the middle income status .
We need a transparent process of petroleum pricing. Our understanding is that price of petroleum products in the country are not determined by crude oil prices as is being perceived by sections of the public. Following government’s decision to deregulate the petroleum downstream market in 1994, pricing of petroleum products has been based on import parity.
“Product pricing is therefore not derived from crude oil prices, but from the international product prices as published by Platt”. The current petroleum products prices are then arrived at using import parity pricing mechanism for all products based on average prices on the international market for different products.
It is our considered opinion that the pricing of petroleum products, the primary source of energy, is one of the key factors that will not only influence long term inter-regional growth but also cost of energy for the economy. The pricing of petroleum products has to take into consideration socio-economic condition of the people based on a self reliant economic growth. We must begin to consider petroleum pricing based on crude oil production (from the jubilee field) and refining capacity within the country to switch over from import parity to domestic cost method. This will allow us to institute an administrative Pricing Mechanism (APM). An APM will enable us to, while taking the total cost into account provide for cross-subsidization of various products, depending upon their ultimate use. For instance kerosene, diesel, LPG could be subsidized as they are mainly used for transport and domestic consumer sectors. The subsidies are provided by charging higher price for other petroleum products.
9.0 TRADE AND AGRICULTURAL SECTOR
The Centre commends government plans in the 2011 budget to continue with Interventions such as: the fertilizer subsidy; boosting of fish production; establishment of mechanization centres; the establishment of a fish processing plant at Elmina; the proposed tariff of 35% on both poultry and rice under the Common External Tariff (CET); the Export Development and Agricultural Investment Fund (EDAIF); and the youth in agriculture programme amongst others;
It is however sad to note that farmers still complain about wrong timing of the subsidy programme and the lack of minimum guaranteed prices for food crop farmers. Also implementation plan in the 2011 budget should tighten the loop holes to avoid the smuggling of the subsidized fertilizer to neighbouring countries.
The Centre also notes that the 2011 Budget is silent on shea development. The Shea industry holds a lot of potential for the three Northern regions and efforts should be made to develop the industry. The Centre regrets that no mention was made about developing the shea industry in 2011 budget statement.
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