Limitations in Rotich’s Sh3tr budget could up inflation

Treasury has presented a budget of almost Sh3 trillion or $29 billion for the fiscal year 2019/2020. Someone should tell us how much of this amount will be generated internally and externally.

However, the budget is inflationary. If the entire budget amount is released into the economy against the assets we have, then the prices of assets will go up, causing a lot of discomfort to the citizenry.

In addition, high asset prices discourage investment.

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The budget is normally presented to parliament mid-June every year so that it is operational at the beginning of the financial year that starts on July 1.

In the yester-years due to budget reading, civil servants and other State officers were paid by June 21, so that the government could close all its books by the end of June. The Finance Bill and the Appropriation Bill are passed by parliament before the budget can come into effect.

Any budget must not be devoid of philosophy. CS Rotich (pictured) on Thursday presented the budget showing item by item, expected revenue and anticipated expenditure for the fiscal year 2019/2020 - detailing government’s plans and programmes through the fiscal year.

A good budget should, however, stimulate balanced economic growth i.e sustained increase in GDP to improve the living standards of citizens. It should also reduce poverty and to increase employment.

The 2019/2020 budget should aim at providing opportunities to the poor and reducing inequalities in income to boost equality and equity among citizens.

Economic disparities

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Equality and equity are major sources of security in any country. Nations’ that narrow economics disparities among its citizens enjoy the relative calm, and those who ignore the chaos.

It is not clear how much of reducing inequality and redistribution in income is in 2019/2019 budget.

The assumption that if we give money to the youth and women, then we are reducing inequality is a bad one.

However, if we invest in viable projects that create wealth, women and youth can be absorbed as workers and earn salaries.

This woman-youth model has failed because it is not grounded. Maybe, public expenditure can be used to reduce inequalities but this is only attainable in an environment devoid of corruption.

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It is not enough talking about economic growth when benefits of that growth do not trickle down to the poor majority.

There is not much in the budget aimed at diluting the concentration of income among the few rich; if anything, the increase in capital gains tax and related charges could scare middle and lower workers out of major asset markets.

I did not see effective use of taxation, to narrow the gap between the haves and have not’s.

The fact that the Teachers Service Commission will get Sh3.2 billion to recruit 5,000 tutors when she requires 12,626 teachers is itself telling because this means in a poor setting somewhere will be understaffed and pupils denied quality education.

Hopefully, the amount channelled to socially productive sectors, such as health, rural electrification, will help address economic and social injustices.

Parliament should also be able to flag down bad government expenditure and revenue collection. The budget is biased. Look at the additional tax on beer, wines, and whiskey.

Local industries

Beer, which is popular with the poor, will be taxed at a higher rate than whiskey. The budget appears not to protect local industries yet our problem has been cheap imports. I do not understand why the allocation of miraa is higher than sugar, yet the sugar sector is on its death bed in this country.

In any case, miraa and cigarettes are on par. The biggest catch in this budget is that we have a deficit of Sh600 billion i.e the governments estimated expenditure is far more than the estimated revenue.

It is okay to adopt a deficit budget to meet the need of the people and to correct unemployment. But in our case deficit budget will hurt if it translates into excessive wastage through government expenditure and costly borrowing.

The feeling is that we borrow expensively and waste.

We are in a bad situation, mass unemployment, and a huge costly debt burden. The budget did not solve the high-interest rate on government bonds.

Literature confirms that budget deficit translates into financial instability. If we continue borrowing, our currency will weaken. Deficit budget will send a negative signal to foreign investors in addition to encouraging wasteful expenditure.

I suspect such a huge budget if not adequately backed by real production can send us into a depression. Treasury should answer to what circumstances should a country adopt a deficit budget? Are we generating enough revenue to service government debt?

-The writer teaches at the University of Nairobi

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CS RotichFinance BillTreasuryUniversity of Nairobi