Ghana needs proper fiscal decentralisation to enhance development

Development means different things to different people. While others see it as an improvement in the economy using GNP and GDP, others see it as more of human-centered implying that development should be about human development.

Among those who use macroeconomic indicators like GNP and GDP to define development, they believe that when these indicators improve, there is development because at a lower population growth rate, per capita GDP increases.

However, in recent times, human-centered expression of development is what many institutions believe because human development expands the wealth of humans rather the economy. The concept of human development is widely accepted because it gives people the opportunities to be educated, have access to basic facilities and freedom to prioritize choices which ultimately lead to improvement in their life. Another aspect of human development is the ability to measure the poverty levels of citizens based on their income or the equal distribution or allocation of national resources.

There have been many reforms to develop Ghana even earlier in the colonial era. These reforms have shifted from the centralization of decision making for the entire country to decentralization which is more participatory. Those in favor of centralization as a planning tool to develop Ghana, especially the colonial government argued that it helps in timely implementation of projects, especially those that are in the interest of the nation.

However, centralization in development planning lost its away after independence to decentralization which is more participatory. Decentralization as a development planning concept is human-centered because it allows people to make their choices on what, when and how to use their resources at the local level. Decentralization is a widely accepted concept because it has its basis from participatory democracy and local development. Democratic decentralization enhances individuals to make choices on leadership and economic decentralization enhances the choice making in the utilization of resources among people.

The history of Ghana’s decentralization policy, a way to development started after independence when the Local Government Act, Act 54 of 1961 was enacted and this divided the country into cities, Municipal and Local Area Councils, and elections held for representatives for district councils, chaired by traditional authorities. Later, the Local Administration Act, Act 359 of 1971 was enacted. This Act conferred the appointive powers of the Prime Minister to the Regional Chief Executives to head the Regional Councils. This was later amended in 1974.

The purpose of the amendment was to promote local development at Area, Local, Urban, District and Municipal Councils. In the promotion of decentralization, a tool for national development, the Local Government Act, Act 462 of 1993 was enacted and subsequently the National Development National Development Planning Act of 1994 (Act 480) was introduced. These two Acts provided the foundation of Ghana’s new era of decentralization.

These Acts conferred political powers, administrative, planning, and implementation of programmes, investment management, and fiscal decentralization. Fiscal decentralization as one of the components of decentralization is very important to the decentralization process because it is the foundation of all the other components especially with regards to development at the local level.

Fiscal decentralization is core to the development of any programme at any local level. The concept of fiscal decentralization is to achieve economic efficiency and revenue mobilization at the local level which are necessary tools for local development. It gives local people the capacity to make choices about their expenditure because decisions on expenditure affect their welfare.

Fiscal decentralization allows people at the local level to prioritize their needs and an opportunity to determine how their funds are used for their general wellbeing. Effective fiscal decentralization is an important tool in poverty reduction at the local level because it empowers local communities to achieve the needed development.

Fiscal decentralization is the balance between local revenue mobilization and spending or expenditure. The sources of revenue for spending at the local level include Internally Generated Fund (IGF) which are sourced from local taxes, fines, charges etc., transfers from the central government which is sourced from Common Fund (DACF), Other Development Transfers (ODT) sourced from grants and donations from organizations. The expenditure aspect within the fiscal framework of the local government includes the provision of educational, health, transportation and other types of infrastructure.

The expenditure column is dependent on the generation of revenue. However, revenue mobilization is faced with many challenges in Ghana. These challenges include poor revenue mobilization which may be due to under-declaration by revenue collectors, revenue collectors who are under the control of central government, no fiscal space to borrow through loan guarantees, delays in disbursement of government transfers (DACF), poor accountability system, weak management information system, low economic performance of some local assemblies which affects their tax mobilization and lack of efficiency in the distribution of government transfers among others.

These bottlenecks stampede the process of local development and for that matter, the concept of development has been a mirage to people at the local level. They limit the provision of public goods that are necessary for the promotion of human development.

The way forward for Ghana is tackling some of these challenges so as to improve human development and reduce poverty. It begins with the amendment of the local government act to re-align DACF to MMDAs that really need government support because some if efficiently managed, do not need support from government to improve the welfare of their people. This really reduces the burden on the government and improves the disbursement of the DACF because the number of beneficiaries will reduce. There are some MMDAs who could mobilize revenue locally to prioritize their needs. Such big MMDAs like the AMA, KMA, TMA, etc. should not depend on central government transfers to improve the human development of their people.

However, if the central government deems it fit to prioritize a project at some of these local levels, it does that from the ABFA. Such bigger institutions should be allowed to borrow a maximum amount from the capital market on their books guaranteed by the central government to embark on investment activities that can generate revenue to pay back the facility.

Most of these bigger MMDAs have potentials to create employment for their people and allowing them to invest in productive ventures will reduce employment which is the cause of most urban social vices. In this case, there should be metro bonds or municipal bonds like done in other countries but unlike other countries, ours should be used investment of profit-making ventures.

Another important factor, the government must critically look at in terms of proper fiscal decentralization is periodic collection of household and business data by the town and country planning and the Ghana Statistical Service. This data could be used to estimate the amount of revenue expected from a particular MMDA. This will enable proper outsourcing of revenue mobilization because at any time there are projections of revenue expected from the community. Lastly, this reduces under declaring of revenue collected by agents. However, it must be noted that data generation is expensive but once it is collected it could be used for better fiscal planning.

Aside from the collection of data, there should be periodic evaluation of properties so as to assign the right taxation to properties. The evaluation of properties should be matched with the ability to pay by the local members. Therefore, there should be town hall meetings for community members to agree on the amount each category of property should be taxed. This participatory model in tax collection will enhance revenue mobilization because the amount to pay is decided by the payees and it is binding.

Proper fiscal decentralization can also be enhanced if local government prioritize their expenditure. Expenditure at the local level must be need-based. The people must demand for that expenditure. This encourages revenue mobilization and reduces wastage. Revenue mobilization in the sense that as rational beings, citizens are willing to pay their taxes when they see projects implemented to solve their basic needs and the otherwise is true.

It reduces wastage because projects implemented will be effectively utilized because a Beneficiary Participatory Project (BPP) is a utilized project. Proper prioritization of needs also enhances efficient use of resources because the limited resources at the local level will not be used for unintended activities or projects.

In conclusion, development should be human-centred and this can be achieved through participatory development based on the needs of the people. To achieve this, Ghana needs a proper fiscal decentralization system and this can be done if the nation prioritizes the DACF to MMDAs who really need it, local government prioritizes their expenditure and taxation based on the available data from the MMDAs.