2025 Budget: A shift towards youth empowerment, fiscal discipline amidst growing deficit?

Resident John Mahama’s 2025 budget aims to focus on fiscal discipline, youth empowerment and social interventions, while also addressing Ghana’s rising debt and fiscal deficit.

The budget presents a bold attempt to realign the country's economic trajectory, with a focus on reducing government expenditure, expanding youth-focused programmes, and increasing funding for social services. However, some of the government's decisions, particularly around tax reforms, have sparked debate about their long-term sustainability.

The 2025 budget reflects a notable reduction in government expenditure.

Total spending is projected at GH¢269.1 billion, down from GH¢279.2 billion in 2024.

This cut is part of the government’s broader plan to stabilise the economy and reduce the fiscal deficit.

The deficit is projected at GH¢43.8 billion (3.1 per cent of GDP), a significant improvement compared to the previous year’s GH¢56.9 billion (4.1 per cent of GDP).

Despite these cuts, the government has focused on expanding social interventions, particularly those targeting the youth.

Youth-centred policies

The 2025 budget places significant emphasis on policies aimed at benefitting the youth. GH¢3.5 billion has been allocated to sustain the Free-SHS programme, providing tuition, boarding and other expenses for students.

Additionally, a new No-Academic-Fee Policy will waive academic fees for first-year public tertiary students, with GH¢499.8 million set aside for this initiative. 

Further, gender-focused policies include GH¢292.4 million for providing free sanitary pads to girls in primary and secondary schools, and GH¢1.788 billion for the School Feeding Programme, which will serve approximately 3.5 million students.

There is also a focus on vocational training and job creation, with GH¢300 million for the National Apprenticeship Programme and GH¢100 million for the National Coders Programme, helping to address the high youth unemployment rate.

Tax reforms

A major aspect of the 2025 budget is the abolition of certain taxes, most notably the Electronic Transfer Levy (E-Levy) and the betting tax.

The E-Levy, introduced in 2022, was widely disliked for its negative impact on mobile money transactions.

Its removal is seen by many as a victory for ordinary Ghanaians.

Similarly, the betting tax abolition has been welcomed, although some experts argue it could have been maintained, or even reduced, to help curb youth gambling, which is an emerging problem.

However, the government’s decision to retain the COVID-19 Levy, with a promise to phase it out later in 2025, has sparked criticism.

Despite efforts to consolidate the country’s fiscal situation, the high deficit and mounting debt have led many to question the wisdom of tax cuts at this stage.

The projected fiscal deficit of GH¢43.8 billion raises concerns over Ghana’s ability to maintain fiscal discipline while cutting taxes.

Meanwhile, the decision to abolish taxes has drawn comparisons to the New Patriotic Party (NPP) government's 2017 move to cancel certain taxes, only to later reintroduce new ones.

Like Mahama’s government, the NPP promised during its 2016 campaign to abolish certain taxes, which it did, but later reintroduced others to cover government spending.

Many experts speculate that President Mahama's government could face a similar situation and may eventually have to reintroduce some of these taxes if revenue mobilisation falls short.

Given the country's high debt and fiscal deficit, the long-term sustainability of these tax cuts remains uncertain.

Debt management and balancing social investments

Ghana's public debt remains a major concern, with a substantial debt overhang. While the government is working on restructuring the debt and reducing domestic borrowing, the sheer scale of the debt presents a significant economic challenge.

The fiscal deficit, coupled with the need to service debt obligations, has raised doubts among critics about the government's ability to meet its fiscal targets and fulfil its promises to the public.

The budget’s focus on improving revenue mobilisation through enhanced compliance and tax reforms is crucial.

However, without significant improvements in these areas, it is unclear how the government will reduce the fiscal deficit without reintroducing some of the taxes it has abolished.

The 2025 budget represents a complex balancing act for President Mahama’s government.

While the focus on youth empowerment, education and social interventions is commendable, the abolition of taxes and the growing fiscal deficit pose significant risks.

The government must strike a delicate balance between maintaining fiscal discipline and delivering on its promises to the youth and vulnerable groups.

The challenge will be in ensuring that fiscal consolidation efforts continue while fulfilling social promises.

Whether the tax cuts will remain permanent or be reversed in the future remains to be seen, but the government’s ability to navigate these economic challenges will define its legacy in the years to come. 

In conclusion, while the 2025 budget offers hope for a more inclusive economy with a strong focus on the youth, the sustainability of the tax cuts and the high fiscal deficit are major concerns.

The government's ability to meet its fiscal targets, reduce the deficit and manage its debt will determine the long-term success of the budget.

The writer is a Political Scientist