The Institute of Economic Affairs (IEA) has called on the government to demand more revenue from Ghana’s extractive sector by imposing higher taxes on companies.

The IEA emphasised that the Growth and Sustainability Tax (GST) introduced in 2001 which was increased from 1per cent to 3 per cent for the extractive sector was not high enough.

It further argued that Ghana was not maximising its benefits from the sector due to outdated fiscal policies and urged the government to review existing laws to ensure a more favourable fiscal regime.

In a statement, the IEA criticised Ghana’s projected revenue-to-GDP ratio of 16.1per cent for 2025, describing it as unambitious compared to the 25-30per cent average of peer middle-income countries.

The think tank believes that closing tax loopholes and enforcing better revenue collection strategies could significantly improve the country’s financial standing.

Investment over consumption

The IEA also reiterated its longstanding recommendation that all borrowed funds should be strictly channelled into investment projects rather than consumption.

This, the institution observed, would spur economic growth, ensure productive use of loans, and prevent the country from falling into recurrent debt crises.

The 2025 Budget, presented by the Minister of Finance on March 11, 2025, heavily focused on social interventions such as Free Senior High School(SHS), Free nursing and teacher training allowances, Free first-year university fees.

Others, were Free National Health Insurance Scheme(NHIS), Free sanitary pads for schoolgirls and Free primary healthcare.While the IEA acknowledges that these initiatives have social and economic benefits, it warns that excessive reliance on free benefits without productive investments could strain the national budget.

With most of the budget allocated to employee compensation and free benefits, investment spending was severely squeezed, which could slow down economic growth.

Call to action

The IEA urged the government to prioritise economic productivity over excessive social spending. It emphasised that well-planned, costed, and efficiently executed initiatives were essential to prevent waste and budget inefficiencies.

Additionally, it called for constant monitoring and evaluation to ensure that Ghana’s budget remains sustainable and growth oriented.

Background

The 2025 Budget was presented against the backdrop of a severe economic crisis, marked by high inflation, currency instability, rising cost of living, soaring national debt and high unemployment rates with Ghana currently under an IMF-supported Extended Credit Facility (ECF) programme (2023-2026).

The IEA expected the budget to focus on fiscal consolidation to restore macroeconomic stability and debt sustainability at the same time. It also expected the budget to indicate a clear path to economic recovery anchored by a strong revenue mobilisation drive and rationalised expenditure strategy.