Ndung'u budget could make life worse for Kenyans, experts warn

An activist is detained by security officials after he attempted to grab the ICONIC briefcase that Prof Njuguna Ndungu Cabinet Secretary Treasury was carrying as he made his way to Parliament to read the Budget Statement. [John Muchucha, Standard]

The government’s spending plan for the 2024/25 Financial Year continues to elicit sharp reactions from members of the public, economic experts and politicians, with some members of Parliament threatening to shoot down the Finance Bill.

Experts and Opposition politicians yesterday cautioned that spending cuts to key public sectors and the proposed tax policies could adversely impact public service delivery and further raise the cost of living.

“Suspending recruitment in the public service sector, should not be generalized,” said Kwame Owino, Chief Executive, Institute of Economic Affairs (IEA). “Some sectors are very crucial, hence sectors like education and health might be hit hard.”

The IEA boss further noted that several constitutional commissions and independent offices had seen their budgets slashed by up to 20 per cent.

This includes the Commission for Revenue Allocation (CRA), Kenya National Commission on Human Rights (KNHCR) and the Commission for Administrative Justice (Office of the Ombudsman) that suffered between 11 and 20 per cent in budget cuts.  

When he delivered his Budget Statement in Parliament on Thursday, Treasury Cabinet Secretary Njuguna Ndung’u highlighted measures to reduce the public sector wage bill, including suspending new recruitment in the public sector.

In the statement, Ndung’u defended the spending plans for the 2024/25 financial year, where the government’s expenditure is expected to hit Sh3.99 trillion.

He also outlined the measures to finance the budget that includes raising Sh3.34 trillion through tax revenues and ministerial appropriations in aid. 

Treasury has proposed a raft of measures in the Finance Bill 2024 that many have termed as punitive and could push many Kenyans deeper into poverty. The government has also been criticised for ignoring the plight of Kenyans by allocating less money to essential services.

“The budget does not favour the poor as it takes money from essential services like agriculture, education, health and transport and invests it in administration,” said Okiya Omtatah Busia Senator. 

Through the measures that increase some of the existing taxes while introducing new ones, the government expects to increase tax revenues by about 20 per cent to Sh2.9 trillion over the next financial year. Experts noted that this is highly ambitious, with tax collections having grown by about 10 per cent on average.

Experts at business consultancy firm Deloitte further noted that the government will have to do a balancing act between increasing tax revenues and addressing the concerns relating to high cost of living and cost of doing business that are detrimental to the well-being of the public and sustained economic growth.

“The last two Finance Bills under the current administration have proposed to grow tax collections by Sh302 billion and Sh211 billion for the fiscal years 2024/25 and 2023/24, respectively. Between 2019 and 2022 growth projections had been relatively modest at between Sh35 billion and Sh50 billion,” said Fredrick Kimotho, Deloitte East Africa Tax and Legal Associate Director.

“In contrast, the annual percentage growth in tax revenue has not been growing proportionately to annual GDP growth rates. It therefore comes as no surprise that there has been increased public furore around the 2023 and 2024 Finance Bills given the disproportionate increase in tax revenue projections compared to growth in GDP, with various sector players decrying an increasingly burdensome and hostile tax environment.”

“Unless the government implements a robust, well-thought-out national tax policy that will truly incentivise investment, increase production, and breathe new life into the economy, achieving the desired tax-to-GDP ratio will continue to be an unrealistic goal and will impose a greater burden on the already burdened citizenry,” Kimotho said.

President William Ruto had a round table meeting with the private sector on Wednesday, a day before the Treasury CS presented the Budget Statement, during which the business community raised concerns about the impact that the Finance Bill 2024 would have on local industries. 

The Kenya Private Sector Alliance (Kepsa) said industry players proposed what they thought were feasible solutions for consideration.

The President, Kepsa said, gave his word that he would look into the concerns of industry players as well as consider the proposals to some of the tax measures that the government had made.

“The President affirmed the government’s keenness to consider some private sector proposals on the Finance Bill 2024,” said Kepsa in a brief following the meeting. 

In the meeting with the President, the private sector lobby appeared to have moved from the combative approach that its members had displayed during the public participation process and instead appears to have asked the government to consider a compromise. 

During their submissions to the Kuria Kimani-led Committee on Finance and Planning, the sector lobbies had demanded that Treasury drop some of the measures noting that they would have adverse impact on local businesses and Kenyans. The contentious measures include the 2.5 per cent motor vehicle tax, the Eco Levy and the 25 per cent import duty on crude palm oil.

Some of the areas where Kepsa is proposing a compromise include the motor vehicle circulation tax in which it proposes “to have different calibrations for the different clusters of motor vehicles, especially for the commercial and agricultural”.

The Finance Bill has proposed the tax at 2.5 per cent of the value of the vehicle, subject to a minimum of Sh5,000. 

Analysts have noted this would have a major impact on the cost of products for households. They also note the impact on the insurance industry, with many motorists expected to shift to third-party covers, denting the sector that already suffers low penetration rates. 

The Finance Bill 2024 has also proposed an increase in the Import Declaration Fee (IDF) from 2.5 per cent to three per cent but Kepsa has asked the government to “explore three IDF bands for IDF (Raw materials 1.5 per cent intermediate, 2.5 per cent and finished goods 3.5 per cent)”.

To grow tax revenues, the lobby told the Treasury to consider road tolls, double National Transport and Safety Authority inspection booking fees and introduce a Sh50 per boda boda fee per day.

To address revenue shortfalls, the government has widened the tax bracket and borrowing. However, these actions risk further burdening citizens already grappling with high living costs.

The proposed introduction of new taxes, including motor vehicle taxes and excise duties, has sparked concerns about exacerbating the high cost of living.

Nyangi John Juma, a senior research analyst at the Institute of Public Finance, said the budget does not provide adequate disclosure of the various funding sources.

On financing climate change adaptation and mitigation measures, he said there is need for the government to enhance transparency and accountability on climate finances.

“The government needs to provide more information about climate finance sources and expenditures at national and county levels,” he said.

[Additional reporting by Frankline Sunday]