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June 20, 2018

Expert comment: Shall we increase our cloth or trim our coat?

The briefcase containing the 2017/18 draft budget policy statement, as displayed by Treasury Cabinet Secretary Henry Rotich, ahead of the reading at Parliament on March 30, 2017. /HEZRON NJOROGE
The briefcase containing the 2017/18 draft budget policy statement, as displayed by Treasury Cabinet Secretary Henry Rotich, ahead of the reading at Parliament on March 30, 2017. /HEZRON NJOROGE

This afternoon Treasury CS Henry Rotich will read the budget. Worth emphasising is that success in service delivery depends on how well government fulfills its promise of delivering a high quality of life for all.

It is futile to expect us to pay taxes but fail to provide public goods and services.

Rotich’s headache, however, will be how to finance the Sh3 trillion- plus budget. He will propose a mix of mechanisms but where will the money come from?

Taxation including VAT, income, excise and import duty is expected to raise Sh1.9 trillion. Grants and already committed loans will raise Sh500 billion — leaving a Sh562 billion hole.

It’s not news that deficits grow every year. Will this imply government borrows more and increases an already huge burden of Sh4.7 trillion debt?

These are key issues. First, focus on widening the tax base to ensure everyone pays tax. All data on cash transactions via banks and mobile platforms are enough to locate and compel people and businesses to pay.

Second, rethink the place and cost of tax breaks and special economic zones. For instance, companies established at the Export Processing Zone are now profitable, but they still enjoy considerations that should be for start-ups.

Anecdotal evidence suggests Kenya loses Sh33 billion in tax breaks — more than we spend on universal primary education. It is essential to increase the capital gains tax of only five per cent, giving undue advantage to the rich.

Third, build productive sectors of our economy to ensure more people have meaningful incomes and contribute to national revenue.

We need proper targetting of all programmes and judicious spending of resources allocated. The budget must be more realistic. Parliament should make a call on huge non- discretionary spending.

Read: Cost of unga, milk, drugs to go up in budget

Also read: We want a ‘Wanjiku’ budget, lobby tells Treasury CS Rotich

Tasks are duplicated by ministries, departments and agencies and this must be rationalised within the programme-based budgeting framework.

Fourth, cap borrowing in a financial year to ensure we cut our coat according to our cloth and not try to increase the cloth through borrowing.

The economist at the International Budgeting Partnership spoke to the Star

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