What you need to know:
- This is the second Budget in the Covid-19 era and it is fraught with challenges.
- A worrying trend has been increased borrowing to meet recurrent expenditure.
It is yet another Budget today and citizens are anxious about new proposals to drive the economy in the next financial year. This is the second Budget in the Covid-19 era and it is fraught with challenges. Since Covid-19 struck more than a year ago, the world has gone through economic depression arising from controls put in place to contain the coronavirus.
The disruption in global trade and travel, as well as containment measures, caused Kenya’s economic growth to shrink to about 1.5 per cent last year, compared to more than five per cent in 2019. Coming against the backdrop of decline, the challenge for The National Treasury is to raise cash to meet the budget plan that is estimated at Sh3 trillion.
Of late, Treasury Cabinet Secretary Ukur Yatani has been enforcing austerity measures to minimise expenditure. It is recalled that tax waivers, including reduced value added tax, that were extended to the citizens last year at the peak of the pandemic were withdrawn. This has a double effect: Raising revenues for the government but diminishing productivity.
However, a worrying trend has been increased borrowing, especially from the bilateral lenders, such as the International Monetary Fund, to meet recurrent expenditure. This has caused a spiral on the public debt burden, which has a negative impact on the economy in the long run.
High tax burden
The challenge the Treasury CS faces is to strike a balance between increasing taxes to boost revenues while ensuring that the citizens are not impoverished further. A high tax burden reduces productivity and, in a context where jobs have been lost and businesses are struggling, it is counter-productive.
Indeed, there was uproar a few months ago, when the government increased fuel prices as the decision adversely affected businesses. Targeting such commodities as fuel for higher revenues has social and economic risks.
Given the circumstances, The National Treasury should focus on cost-management, put on hold non-priority items and spare the citizens the agony of high taxes and exorbitant prices of fuel and other basic commodities.