Yatani stimulus too low, says audit firm

Treasury Cabinet Secretary Ukur Yatani on Budget Day last week. [Wilberforce Okwiri, Standard]

The economic stimulus project announced by National Treasury Cabinet Secretary Ukur Yatani last week Thursday will not help resuscitate the country’s economy.

This is according to tax and audit firm Ernst and Young (EY), which argues that the government’s intervention to revive the economy battered by the Covid-19 pandemic falls short by Sh170 billion.

During his maiden Budget Speech, CS Yatani injected a total of Sh225 billion both in foregone taxes as well as direct liquidity injection - which translated to about two per cent of gross domestic product (GDP) - but the audit firm believes this is just a drop in the ocean.

“At least four per cent of GDP is required to jump-start a battered economy like ours. Based on this, the government intervention falls short by about Sh170 billion,” said Christopher Kirathe, a tax expert at the firm in a report on the 2020/21 budget released yesterday.

Kiss of life

For the 2020/21 financial year, Yatani announced a Sh2.8 trillion budget that is meant to give a kiss of life to the economy ravished by the pandemic.

This includes a Sh53.6 billion stimulus package set to be injected into key sectors of the economy in the next financial year.

Of the total amount of the budget, the government hopes to collect Sh1.6 trillion in revenue which, according to EY, will prove to be an uphill task considering the negative impact the coronavirus has had on both people and businesses.

Furthermore, to help achieve the revenue target, Yatani announced plans to roll back some tax exemptions with 31 goods set to see an increase in excise duty by 5.5 per cent, which sets the stage for higher retail prices effective July.

“Kenya’s primary tax revenue streams are from a range of income, property and consumption taxes. The combined weakening economy resulting from the closure of businesses, laying off of employees, locked down global supply chains, all to put to test the government’s assumption that it will collect the projected Sh1.62 trillion,” said Mr Kirathe.

The auditors argue that even though the government intervention is welcome, seeking for loan moratoriums on both principal and interest would have helped the country in redirecting the money to restart the economy.

With the government’s Achilles heel being high recurrent expenditure and payment of loans, the country will spend Sh904 billion to repay debts.

“We should have a serious cut-back of waste and largesse within the national and county government and formulate policies of how to live with and manage covid-19, rather than how to overcome,” said Kirathe.