The Earmarked Funds and Capping Realignment Bill, 2017, has been passed into Law under a certificate of urgency by Ghana’s Parliament.
The Bill sought to provide a cap for Earmarked Funds to ensure that the total of Earmarked Funds for each financial year is equivalent to 25% of tax revenue and to provide for related matters.
The new Law is also aimed at freeing up public resources by placing a cap on the specific Earmarked Funds to ensure that tax revenue encumbered by those Funds as a result of allocations to them does not exceed 25% of total tax revenue. It has also empowered the Minister responsible for Finance in consultation with relevant sector Ministers to review the enactments under which the Earmarked Funds were established. This is to make a determination as to whether or not a particular Earmarked Funds has outlived its usefulness and should cease to exist.
Explaining the need for Capping to the Finance Committee of Parliament, the Minister for Finance, Ken Ofori-Atta, informed the Committee that the Capping arrangement has become necessary due to the need to remove some of the rigidities in Ghana’s public expenditure and development strategies.
He added that presently, the government is left with virtually nothing after taking out interest payments, compensation of employees and earmarked funds, a situation which he said had resulted in the unwanted and unsustainable cycle of borrowing by government to fund any other important expenditure to meet the aspirations of the people.
The Capping policy is thus geared towards ensuring that revenue from the various Earmarked Funds beyond the capped levels are realigned for use as general budget support in order to enable government to prioritise expenditure for each financial year based on the needs of the country and other emerging priorities.
The Bill was sponsored by the Finance Minister.
Presenting the Report of the Finance Committee, the Chairman, Dr. Assibey-Yeboah told the House that Ghana has established various statutory and dedicated Funds for purposes of funding specific sectors of the national economy. He added that over time, these Funds have grown in number and economic significance, stating that government has determined dedicating predetermined percentages of tax revenue for budget implementation. The Chairman cited an instance in 2016, when earmarked funds took up to 32.9% of tax revenue, from 28.2% in the year 2015 and 25.2% in 2014.
Dr. Assibey-Yeboah further informed Parliament that the rigid dedication of tax revenue to predetermined uses impedes the ability of government to shift public spending from one expenditure line to another even where prevailing exigencies require government to do so. He further explained that the impact of this rigidity was compounded by the fact that currently, the country’s total revenue is virtually consumed by three budgetary lines, namely wages and salaries, interest payments and amortisation and earmarked funds. The Chairman added that these three items alone were said to have accounted for 107% of government revenue in 2016. As a result, all other government activity outside these three budgetary allocations have to be financed by borrowing, a situation which he says is unsustainable.
He further informed the House that as part of efforts to deal with this rigidity in the system, government intends to cap Earmarked Funds as a percentage of total tax revenue by placing an obligation on the Minister responsible for Finance to ensure that Earmarked Funds for each year is equivalent to 25% of total tax revenue.