Identifier
Created
Classification
Origin
03ACCRA447
2003-03-04 14:33:00
CONFIDENTIAL
Embassy Accra
Cable title:  

WAGES AND TAXES: WEEK'S EVENTS SET STAGE FOR

Tags:  ECON EFIN GH 
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C O N F I D E N T I A L SECTION 01 OF 02 ACCRA 000447 

SIPDIS

E.O. 12958: DECL: 03/01/2013
TAGS: ECON EFIN GH
SUBJECT: WAGES AND TAXES: WEEK'S EVENTS SET STAGE FOR
TENSION ON WAGES

Classified By: EconChief F.Day for Reasons 1.5 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 02 ACCRA 000447

SIPDIS

E.O. 12958: DECL: 03/01/2013
TAGS: ECON EFIN GH
SUBJECT: WAGES AND TAXES: WEEK'S EVENTS SET STAGE FOR
TENSION ON WAGES

Classified By: EconChief F.Day for Reasons 1.5 (b) and (d)


1. (U) Summary: The government is in a very difficult
position with its ongoing wage negotiations with government
employees. Its new agreement with the IMF caps the wage bill
at a 22 percent increase, but it has accepted a 28.6 percent
increase in the minimum wage. Holding the average increase
to 22 percent is going to be difficult, particularly as
public employees are expecting generous raises to compensate
for the doubling of petrol prices last January. Ghana's HIPC
program will be endangered, however, if the GoG does not
succeed in holding the line on its wage bill. End Summary.


2. (U) Wage negotiations in Ghana typically begin with
agreement on a new minimum wage. The rate of increase in
that wage becomes the benchmark for the rest of the public
sector, which in turn influences the private sector. After
an abortive attempt by the GoG to unilaterally move the
minimum wage up 26 percent to 9,000 cedis per day ($1.05),
government, employers and the unions have agreed to 9,200
cedis. This is quite a bit less than the 12,000 cedis unions
had been demanding, and it is not clear that the rank and
file will accept it.


3. (U) Negotiations on public sector pay above the minimum
rate have not begun, but Finance Minister Osafo-Maafo's
presentation to Parliament February 27 clarified the fiscal
constraints within which they will be conducted. He
announced many measures to enhance revenue, among them a 7
1/2 percent "national reconstruction levy" on banks that was
to lapse but which will be continued, a 5 percent levy on
re-exported goods, the abolition of non-government lotteries
to give the government lottery a monopoly, direct taxation of
tro-tro drivers, etc. Many observers were surprised by the
absence of an increase in the VAT; we had been told by a
senior minister it would go up 5 percent. In fact,
Osafo-Maafo did announce a 2 1/2 percent increase, but buried
it in the speech so deftly (under the National Health
Insurance Scheme)that not even trained economic analysts
caught the fleeting mention of an increase in levies on
"expenditures and transactions," i.e., the VAT. We were
alerted by an official who knew where in the speech it had

been inserted.


4. (U) The Minister also announced increases in two taxes on
petrol: the road maintenance levy and the debt recovery
levy; together, these will raise prices at the pump by more
than 10 percent on top of January's near doubling of the
price.


5. (C) Protectionist tariffs on rice and frozen chicken were
also added to the package at the last minute, four days
before the speech. According to a source at the central
bank, practically no one knew these were coming. The IMF is
said to be upset with these tariffs for a number of reasons:
it didn't like being blindsided, the reversion to
protectionism seems regressive, and the last minute nature of
the decision raises governance issues. Particularly so, in
the view of our central bank source, as the chicken tariff is
nearly certainly the work of Kwabena Darko, a wealthy and
very well connected chicken farmer (comment: we concur in
this assessment). These tariffs will raise the cost of
living for ordinary Ghanaians.


6. (U) The IMF agreement limits the GoG's ability to offer
more in salary increases than can be afforded with these new
revenue measures but without increased borrowing. The
mutually agreed upon limit is 22 percent. Since the increase
at the bottom end of the scale was nearly 29 percent, other
workers will be asked to settle for somewhat under 20
percent. Workers certainly do not know this yet, and labor
negotiators trying to boost the minimum wage increase did not
realize (or perhaps accept) the zero sum nature of what they
were doing. The more successful they were, the less other
workers might get later.


7. (U) Comment: We may be entering a contentious period.
There is unsettled business left over from the petroleum
increases; people are expecting pay raises. Given Ghana's
current situation, unrealistic expectations may run into
unpleasant reality--the government simply cannot afford more.
Furthermore, a number of provincial officials we have spoken
to recently have termed a VAT increase on the heels of the
petrol hikes "political suicide," but fiscal exigencies left
the GoG no real choice.


8. (U) Comment Continued. While no one noticed the VAT
increase in Osafo-Maafo's address, people will notice it in
their pockets (store clerks will receive instructions on
collecting it),and may be even more annoyed at the seemingly
non-transparent manner in which it came about. They may also
notice the smallish bump in gas prices. Additionally,
electricity and water rates were scheduled to go up March
1st. The stakes are high; ng the line on government borrowing
is a firm IMF condition on renewal of Ghana's HIPC program.
However, we note a near non-reaction to the doubling of fuel
prices save two modest labor marches and the usual radio talk
show froth. The agreement on the minimum wage has also seen
little protest. Fiscal discipline must balance with domestic
political concerns--so far the government is keeping its
balance. End Comment.
PERGL