Public Watchdog
Thursday is Budget Day — an important fiscal day when the Finance Ministers in the East African countries converge in their respective National Assemblies to present budgetary and fiscal proposals.
At this hour, the ministers together with technical mandarins are busy making final refinements to their budgetary and fiscal policy proposals. As part of a harmonised routine, the budgets for the East African Community member states, comprising Kenya, Uganda, Tanzania and expanded recently to encompass Rwanda and Burundi are presented on the same day.
The ministers also meet for pre-budget consultation to harmonise policy proposals aimed at achieving economic convergence and stimulate regional trade.
The East African Community Secretariat based in Arusha where most of the consultations are held co-ordinates the co-operation framework. A fundamental objective of the community is economic integration and monetary union. Political federation is also on the table, but largely considered a distant dream.
It is encouraging that a harmonised taxation regime has progressively been implemented and trade arbitrages on taxation treatment are largely eliminated.
In the past, traders took advantage of varying tax rates for simultaneous buying and selling of the same commodities in different markets to make immediate risk free profit. The agreed tax regime favours products produced within member states based on predetermined eligibility criteria.
What, then, would the 2010/2011 budgetary and fiscal policies entail in the region?
Firstly, in our National Assembly, it will be Uhuru Kenyatta’s second budget since appointment as Deputy Prime Minister and Minister for Finance. This will also be the third budget of the Grand Coalition Government.
No doubt, the budget will be under scrutiny for varied reasons, among them resource distribution and equity. Parliament has since established a Budget Office and it will be interesting to note how the office will influence the budget process and enhances transparency.
Uhuru certainly will be seeking assurances from his technocrats that the figures add up to avoid what was embarrassingly characterised as a "computer error" last year. How will he propose to allocate resources to competing and also compelling national priorities? With limited resources, competing priorities of Grand Coalition Government politics at play, Uhuru is in an unenviable position. He must come out with a win-win resources distribution, development financing, and fair taxation regime.
Business-as-usual
The country faces myriad challenges, the compelling ones being rising unemployment, poverty, and growing domestic and international debt burden. The environment demands extraordinary policy and management interventions. Thus, it must not be a business-as-usual budget with routine fiscal measures, but bold measures to tackle current and envisioned challenges.
Secondly, Uhuru the politician must wait and resist any temptation to present populist measures banking-on-tomorrow. As stated previously in this column, short-term political populism in the budget would be costly and inconsistent with fiscal discipline.
This should be the budget in which Uhuru can afford to promulgate tough fiscal policies and monetary control measures with limited political implications. The General Election is two years away, hence continued austerity and stimulus measures are still feasible without muddling political considerations.
Yes, we have witnessed sustained progress in development of road infrastructure and maintenance efforts. Work-in-progress is visible across the country. This is one area the Grand Coalition Government deserves commendation and resource allocation if the next budget is to maintain the desired momentum.
One other aspect is that devolution of resources to districts and constituencies is beginning to make a difference. However, use and continued control by legislators of constituency devolved resources, cronyism and misappropriation now demand urgent additional internal controls, audits, checks and balances to safeguard against abuse.
It is alleged that many legislators have established construction and materials supply companies. The main aim being cashing-in on the devolved resources now characterised by shoddy works and corruption. Treasury must rein in this emerging corruption culture targeting devolved resources.
Thirdly, creation of a supportive environment for economic growth and productivity must remain the focus of fiscal policies. Towards, this, management of monetary policy and its interaction or alignment with fiscal policy is critical to maintain reasonable levels of interest rates and liquidity in the economy.
Measures to stimulate domestic savings in financial assets are essential as necessary fuel for economic growth. It is essential to ensure price stability characterised by low inflation and low interest rates to facilitate access to financing at reasonable costs.
Original objective
Government, however, must borrow through long-term securities domestically to support infrastructure development, food production.
We also must create incentives for economic empowerment of young qualified unemployed youth given vulnerability and threats to social economic order.
Finally, Treasury should eliminate taxation on discounts granted by listed companies to encourage employees share ownership as it has now undermined the original objective of such schemes. The budget must remain a tool for stimulating economic growth. This is a compelling matter of public interest!
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