The increase in Ghana’s public debt stock has nearly doubled from 36.9% of GDP at the end of 2009 to GH₵ 119.9 Billion (71.9% of GDP) in November 2016. Economic hardships and “particratic” looting and sharing in the contemporary politics of Ghana have made standard of living slummy and gloomy. Ghanaians unexpectedly had no choice than to adhere to austerity with other strict economic tendencies of shaping and decorating the Keynesians economic applications. Currently, the tendency of the government to recover from economic disruption to catch up to their own potential level of output, needs innovation and risk taking, and would require a honest presidential leadership and non-partisan legislative actions.
For Ghanaians to achieve better lives, the current administration (a center-right party) must take steps to allow Ghanaians to build for themselves a relevant and robust economy, a free society, catalyzing free market industrialization and a sustainable employment environment. Infact, many things have to go right, because there have been economic uncertainties, inconsistencies, poor government debt ratio to GDP and unprofitable infrastructures, and high reports on corruption and inflation of government contracts.
Capital formation, the reallocation of funds and the efficient use of factors of production to mobilize savings, investment and maintain wage consistent with full employment and respectable profit rates could be an option. This requires getting a range of complementary industries, each of which, necessary for the viability of the other, up and running. It is a complex task, however, if we claim to have able and industrious educational system with a large human resource there should be no limitations. There have been 36 ministerial appointments a week after the inauguration of the new president of Ghana. It is estimated by Mr. Peter Bismark Kwofie, the founding president of the Institute for Liberty and Policy Innovation (ILAPI-Ghana), a free market policy think tank in Tema that, there would be over 100 ministers in office from 2017 – 2020, just to solving the country’s capricious economic challenges. The institute for Liberty and Policy Innovation has put in a blue print reforms to help the government administration of Ghana to make ethically and morally informed choices inspite of political pressure.This will not help to reduce taxes whiles the government encourages high expenditures (voodoo economics)
The individual sovereignty to make informed choices in the capital market space would enhance high income and improvement in the living standard. Economic PolicyThe emergency bailouts from the International Monetary fund (IMF), and the new regulations was deemed expedient to save Ghana from darker economic fate. Overregulation and excessive government meddling led to the financial crisis, and the previous Administration has expanded and expanding policies and infrastructures that weakens the economy. Under the previous Administration, a greater number of labor agencies and unions have demonstrated, picketed and protested for salary increment and better condition of services leading to lengthy labour strikes of different forms. The Administration has imposed vast new energy regulations, drastically removing subsidies and taxing for energy levy, limiting the energy sector’s potential growth. The President also tightened the new financial regulations, further bringing the financial sector under government control and providing new regulations to licenses and credit facilities, leading to high interest rates. Perhaps worse, government involvement in housing markets has become further entrenched with 5% levy on real estates, even though not primarily necessary.
These examples, among others, help explain why it is really a challenge to make meet the poorly undefined “free” health and “free” education. Undoubtedly, the massive government intervention that’s been foisted on the private economy during the last eight years has not been reversed but increasing. Government control and involvement in the private sector economy has been on the rise for over centuries in Africa. This trend has increased the cost of doing business, made markets less competitive and productive, with high utilities leading to financial instability. While all of these regulations have been bogging down the economy, Ex-President Mahama allowed the tax code to become more convoluted and anti-growth than ever.
FINANCIAL MARKET REFORMS
In Ghana, Financial regulatory system is wholly antagonistic to a free society. This has compelled most youths in using the cryptocurrencies such as the Bitcoin. For eight years, Ghana have been expanding the size and scope of banking regulations, as well as increasingly applying bank-like regulations to non-bank financial companies. Undaunted by their past failures, regulators have continued to grasp a more active role in managing financial firms’ risk taking. This increasingly paternalistic role has harmed the stability, competitiveness, and effectiveness of the financial system. The next presidential proposed budget should recognize that banks and other financial companies improve economic growth and prosperity and must have a serene financial environment free from highly centralized policies. A vibrant economic financial sector improves economic opportunity by fostering capital formation and promoting a more efficient allocation of capital. Increase the number of Banks to compete on interest rate and not restrict them with the increment of minimum capital requirement. Proper monitoring and fair regulations should be encouraged to prevent Banks from collapsing.
The current financial regulatory framework is complex, counterproductive, and disruptive and making individuals and firms losing interest to save with the banks. The expansion of government’s role has made the financial system less stable, reduced competition, promoted no industry concentration, harmed investors, and hampered economic growth. The next budget should set forth a path for returning financial market regulation to its core purposes: deterring and punishing fraud and fostering reasonable, scaled disclosure of material information.
LABOR MARKET IMPROVEMENTS
About 75% of public workers may be unskilled but consumes high fraction of the GDP. The next Administration should review the single spine policy of public workers. Public workers are largely unproductive. The next Administration should encourage state governments to eliminate excessive occupational licensing with bureaucracy and high fees. One in three jobs now requires a government license. Some licenses exist to protect public safety, particularly those in medical fields, security, manufacturing and commercial drivers. However, states license affects many informal jobs that have few safety concerns, such as barbers, bartenders, and interior designers. These licenses exist primarily to restrict access to these occupations and limit competition. This will wall off large portions of the economy to low and moderate-income workers trying to switch jobs.
The existing tax code stifles economic freedom, reducing the amount of prosperity the private economy can create. Fundamental tax reform would alleviate the harm caused by the tax system and allow the economy to grow. Uneven corporate tax, income tax, pay as you earn, vehicle income tax, Value added tax (VAT), and a number nuisance taxes and protectionism. The new presidential budget should reflect that this stronger economic growth would substantially improve the incomes of all Ghanaian and enhance economic opportunities. The new budget should prompt Parliament and the Ghana revenue authority (GRA) to design a tax system that is fair and efficient and that funds the necessary functions of government in the interest of the Ghanaians. A flat tax that eliminates penalties on saving and investment is the least economically destructive tax system. Relative to the current income tax system, a flat tax that excludes gains on income that is saved or invested has the potential to increase economic growth substantially.
Tax holidays for infant business would encourage more young entrepreneurs to start-up ventures. It is difficult to tax the informal sector in Ghana once they do not keep a record book. There are other primitive capitalists who do not pay tax directly to the State. This compelled the previous government to tax the informal sector on raw materials and machineries needed for production. Subsidies removed on Crude oil affected transportation and once the prices on transport fuels goes high, every commodity’s price tags also climbs up.
SHRINKING THE REGULATORY STATE
Regulation has become so pervasive in Ghana that the fundamental character of the nation resembles servitude to the state more than individual liberty. Never before has the need to contain regulation been so critical. More than 100 new regulations have been added in the last eight years. Complying with these regulations requires the private sector to shift an enormous amount of resources away from innovation, expansion, and job creation, thus harming economic growth. This regulatory expansion harms low-income families and fixed-income earners the most because the higher compliance costs translate to higher consumer prices that exhaust a relatively larger share of their personal budgets.
The new President should rein in the administrative state by devising a budget that withholds appropriations from unwarranted regulatory initiatives and overzealous agencies. Meaningful reform also requires voters to hold parliament accountable. For example, no major regulation should be allowed to take effect, until the good people of Ghana are interested.
REDUCING THE SIZE AND SCOPE OF GOVERNMENT INVOLVEMENT
Government involvement in virtually all sectors of the economy has been expanding in both size and scope over the years. This expansion has negatively impacted the long-term health of the economy by imposing both indirect and direct costs. Since 2000, different laws have imposed new fees on the private sector. In the last 10 years, more than 8% of laws enacted contained private sector mandates. Government laws passed, targets the productive private sector through legal extortions. The next presidential budget should reverse these trends and reassert the principle of limited government. Aside from the sheer volume of regulations, government involvement in the economy has expanded via enacted laws, sowing the seeds for future financial turmoil. Aside from providing flood insurance and crowding out private insurers, the government does not regularly back private loans but puts high tariffs on transactions compelling the private banks to charge higher fees on current accounts due to high policy rate of the Bank of Ghana. Government interventions have created more problems from the solutions.
It is interesting to know that government does not own any Hotel in Ghana but regulate the activities of these hospitality facilities. Many do think expanding government involvement in the entire economy is the best that government officials should be the key decision makers and arbiters of the economy’s winners and losers. They are mistaken. Removing oppressive government rules and regulations, along with fundamentally reforming the tax code, will create a vibrant, growing economy that expands opportunity for all. The new President needs to lead the effort to eliminate the many forms of State backing for private sector financial risk taking, leaving economic decisions to the free market.
Peter Bismark CEO/Founding President ILAPI
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