Uhuru walks tight rope as deficit widens

By James Anyanzwa

The Government's revenue collection for 2011/12 fiscal year is headed for a huge shortfall.

Indications point to a slowdown in economic activities and contraction in corporate earnings.

This has left Deputy Prime Minister and Minister for Finance Mr Uhuru Kenyatta walking a tight rope as he runs an economy on leaky public coffers.

Domestic debt is burgeoning, privatisation has nearly stalled and plans for a $500 million sovereign bond now hang in the balance.

"The economy is yet to pick, a situation that necessitates that Uhuru reviews his spending priorities in a bid to tame the runaway expenditure," says Mr Nikhil Hira, head of tax practice at the Deloitte and Touche East Africa.

"Another way to navigate the problem is expanding our income tax brackets," Hira says, adding the tax collector hasn’t expanded the tax net wide enough and in some ways it is still going after the same people for taxes.

"Expenditures are rising and we are not spending more on development. Successful countries have invested more on infrastructure," he says.

WEAKENING SHILLING

The Government expects to make up to Sh774.7 billion in revenue collections or 25.2 per cent of GDP in the 2011/2012 fiscal year.

But drought, rising inflation, soaring fuel prices and a weakening shilling have sparked fears over this year’s economic outlook with the Government projecting the economy to grow at a rate of between 3.5 per cent and 4.5 per cent down from last year’s 5.6 per cent.

The gloom economic forecast comes as a wake up call to Treasury, whose budget-making process is still considered as closed and insensitive.

While it is still unclear what austerity measures the Government could institute in the 2011/12 budget in the face of a potentially crippling financing deficit, questions are rising over the increased number of workshops, seminars, training and travelling allowances for public officers.

Extravagant spending on unnecessary foreign trips in the past is also another area that has come increasing scrutiny.

Previous attempts at cutting public spending have fallen short of yielding meaningful results. In 2009, Uhuru directed Government to buy smaller cars in a move aimed at putting a cap on money spent filling the fuel guzzlers driven by senior ministry officials.

Two years later, attempts to get fuel guzzlers from top government officials have not borne any fruit.

BLOATED CABINET

There are also questions about the significance of the bloated Cabinet of 42 ministers and over 50 assistant ministers.

Holders of these hallowed offices continue eating into the exchequer through hefty salaries and allowances even without clear roles of some of the ministries.

It is estimated the expanded Cabinet costs the exchequer a massive Sh60 billion a year.

As Kenyans survive on a shoestring budget, MPs continue taking home an estimated Sh1.2 million in untaxed salaries and allowances monthly.

Ministers on the other hand earn at least Sh1.5 million per month. The figure triples depending on the number of foreign trips a minister attends.

Additional resources are wasted on the ministers’ security, vehicles, office spaces and furniture and hefty pay perks and allowances.

The scale of expenditure earmarked for Government and Parliament is best illustrated by the fact that Kenyan ministers, their assistants and MPs are among the highest paid anywhere in the world.

These public officials also have some of the best pension, medical, insurance and car packages on the globe.

Consensus is now building that trimming the number of ministries from 42 to 20 could help free funds to invest in infrastructure, whose rehabilitation is critical to lowering the cost of doing business.

The requirement under the new Constitution is that the country should have a maximum of 22 ministers

The projected shortfall in revenue collections comes on the back of a historic Sh1 trillion budget, which has put pressure on Treasury to raise more revenues through taxes and borrowing from the domestic market.

Treasury is also unlikely to meet its revenue targets for the current financial year partly explained by an expected decline in corporate tax income, significant drop in mobile telephony calling rates and excise duty on alcoholic drinks following the enforcement of the notorious Mututho Law.

REVENUE COLLECTIONS

The Government targets revenue of Sh641.2 billion for the 2010/11 fiscal year that runs until the end of June, compared with Sh534.4 billion collected during the previous fiscal year.

The targeted revenue is predicated on the on-going reforms in tax and customs administration and additional appropriation-in-aid from public universities which were previously not captured in budget.

Kenya Revenue Authority (KRA) collected Sh141.3 billion during the third quarter of the 2010/11 fiscal.

KRA has attributed the poor showing to rising international oil prices, which reduced volumes consumed and hence the volume-based tax revenue.