Tuesday, January 27, 2015
Withdrawal of subvention amounts to shirking of responsibility
The plan to withdraw the government’s subvention from some state agencies beginning this year has attracted mixed reactions from some civil society organisations.
While a section believes the proposal amounted to the government shirking its responsibility to the citizens, another section believes that it will help offload pressure on government payroll.
A Policy Analyst at the Integrated Social Development Centre, Ghana (ISODEC), Mr Leonard Shang-Quartey, in an interview with the GRAPHIC BUSINESS, said, “If these institutions were performing, I don’t think that government would say it is weaning them off. It seems more of an attempt to abandon responsibility and not wean off per se”.
Instead, he said, there were clear challenges that needed to be addressed, especially concerning agencies such as the Ghana Water Company Limited (GWCL) and Electricity Company of Ghana (ECG), that had been cited.
The policy
The government hinted in the 2015 budget that it was set to wean off eight subvented agencies as part of plans to trim down the wage bill.
GRAPHIC BUSINESS sources at the Ministry of Finance (MoF) said government was hoping to save between GH₵20 million and GH₵25 million per quarter, when the implementation goes live this year. Implementation is expected in phases, spread over three years.
The CSOs argue
Mr Shang-Quartey said that the wage bill of these institutions constituted a huge chunk of the government’s expenditure.
“Their bills do take a substantial part of government revenue but then the solution is not to abandon responsibility, but to deal with the problem of limited tax coverage,” he said.
He said that although subjecting some of the state agencies to the discipline of the free market system was a good thing, it may not augur well for all of them.
“The assumption behind the argument is that once you subject some of these agencies to the workings of the market, the good ones stay and the bad ones fall by the wayside. But then in dealing with state agencies and critical ones such as ECG and GWCL, they cannot be subjected to the workings of the market,” he said.
He said although there was keen competition in the market, the nature of the operations of GWCL and ECG, which involved production and distribution, was such that the talk about market bringing about competition did not arise for the two.
“So there is a bit of a problem if GWCL and ECG are included in the list of agencies to be weaned off government subvention. The idea is good based on which organisation you are looking at but in the case of GWCL and ECG, I must say that looking at the argument, it does not favour these two institutions because the element of competition is absent,” he said.
SEND Ghana
The Country Director of SEND Ghana, Mr George Osei-Bimpeh, said a bloated public sector wage bill was a major concern and, therefore, any attempt by the government to look at things from a business perspective was in the right direction.
He said although such a policy was good, it did not mean that the agencies, particularly ECG and GWCL, should be allowed to also shift every cost to disadvantage the poor.
“That’s why it is important that the regulatory mechanism that we have in the case of the Public Utilities Regulatory Commission (PURC) should ensure that the fact you have been weaned off does not mean you should be operating as a typical private sector firm that is motivated by the penchant for profit. We need to draw a line as to whether they should break even to take care of core cost or whether they will be interested in making profit,” he said.
He said it was important that the PURC be strengthened to be seen to be protecting the interest of the poor in terms of how they regulate the activities of some of these essential state organisations.
“The fact that they are being weaned off does not exonerate them from being regulated, and in doing that the PURC must always take into account that these are not there to make profit but to provide social services to everybody, including the interest of the poor,” he said.
Mr Osei-Bimpeh objected to the assumption that once they are weaned off subvention, the automatic repercussion should be passed on to the consumers, saying that could only happen if they were left on their own. But if they are regulated to determine their output as a determinant of how much they should be paid, they cannot increase conditions of service anyhow.
“We should be interested in how they plough back all those resources for investments to make their services more efficient. We need to be mindful of how they use their internally generated fund,” he added.
Expenditure
Expenditure on Wages and Salaries from January to September 2013 totalled GH¢5,883.9 million, 5.5 per cent higher than the budget target of GH¢5,576.5 million and 19.4 per cent higher than the outturn for the same period in 2012.
In addition, an amount of GH¢846.3 million was spent on the clearance of wage arrears. Expenditure on wages and salaries alone was 66.3 per cent of non-oil tax revenue (excluding exemptions) and 62.3 per cent of tax revenue (excluding exemptions).
Including the wage arrears paid during the period, expenditure on wages was 75.8 per cent of non-oil tax revenue (excluding exemptions) and 71.3 per cent of tax revenue (excluding exemptions). For the year as a whole, wages and salaries, including the provision made for the clearance of wage arrears is projected at GH¢9,567.1 million, 25.8 per cent higher than the 2013 budget estimate.
Challenges of the utilities
According to Mr Shang-Quartey, there are basically two problems facing the ECG and GWCL; investment and lack of capital to replace old and worn-out infrastructure.
He said although in the case of GWCL there were some signs of improvement in relation to new infrastructure, there was still room for improvement.
Also, he said the private sector had often rejected government’s invitation to invest in the sector because the return for the sector was not guaranteed.
“Going back to this policy again and asking the likes of GWCL to resort to such means of financing the wage bill and certain element of capital cost will mean just one thing, that the existing customer base of GWCL will be burdened by this particular situation”.
He continued, “If they cannot get additional capital for further expansion and replacement of worn-out infrastructure, the inefficiency of the system will be passed on to the consumer”.
Another challenge, he said, had to do with successive political influence or vulnerability of managers -- the board and management -- of the two state organisations.
He said an option would be to institutionalise representation on such boards so representatives from the state, market and civil society would be present.
“If we are not able to deal with the issue of political vulnerability and we withdraw subvention, it could have an effect on procurement processes, which there are a lot of problems with, and also concerning tax discipline,” he said.
Recommendations
They have recommended that the GWCL and ECG should be excluded from any move under consideration to withdraw subvention.
Mr Shang-Quartey said the discussions around the issues should be widened and should go beyond the economy, labour economist and finance experts within government, and should include government, business and civil society actors.
“We do not have to have to rush decision especially when we find ourselves in desperate times. We should be getting to the point of addressing real problems,” he said.
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