Markets & Finance

Why Sh2.2 trillion budget signals more tax pain

ROTICH

Treasury secretary Henry Rotich. The budget expansion sets the government on the path to intensifying its revenue raising efforts or borrowing to finance its obligations. PHOTO | FILE

The Uhuru Kenyatta government has made public its intention to stay on the path of expansionary budget with the release of next year’s expenditure estimates showing that public spending will rise by a quarter to Sh2.17 trillion.

The expenditure plan, which was made public at the end of a Cabinet meeting on Wednesday night, also reveals the rising cost of ongoing infrastructure improvement and the strengthening of national security apparatus.

The State House briefing shows that energy, infrastructure and ICT sectors will for the first time overtake education in spending having been allocated 27.3 per cent of the budget compared to 21.7 per cent in the current fiscal year.

This means a total of Sh385.41 billion has been earmarked for the sector up from Sh256.81 billion in the current financial year or a 50.08 per cent increase.

The money is expected to go into the mega infrastructure projects such as construction of Standard Gauge Railway and improvement of roads network that Mr Kenyatta’s Jubilee administration has put top on its agenda.

Mr Kenyatta’s Sh2.17 trillion budget implies that total spending for this financial year is expected to hit Sh1.74 trillion – slightly higher than the revised figure of Sh1.67 trillion.

The Cabinet briefing shows that National Security share of the budget will rise to 8.2 per cent or Sh114.07 billion from the current 7.7 per cent (Sh90.72 billion). 

Higher spending on security comes against the backdrop of persistent deadly terrorist attacks that has claimed more than 400 lives since Mr Kenyatta took over the presidency two years ago.

“The interventions specifically target modernisation of the military and the police to give them adequate capabilities to deal with and vanquish the security threats arising from terrorism,” said the cabinet briefing.

Increased spending on infrastructure and security in the coming year has, however left other key sectors such as agriculture, health, education, social protection, environment, commercial affairs, public administration and governance with less money as a proportion of total spending, according to the Budget Policy Statement 2015/16.

The more than Sh400 billion budget expansion sets the government on the path to intensifying its revenue raising efforts or borrowing to finance its obligations.

“The budget estimates appear to suggest a further increase in government borrowing or taxes in 2015 to cover for the planned spending increase,” said analysts at Nairobi-based Standard Investment Bank in a note to clients.

READ: Treasury to raise domestic debt by 75pc next year

The education sector, which has been the biggest consumer of public funds with 26.1 per cent of total spending or Sh308.35 billion in the current financial, will see its share of the national budget fall to 23.5 per cent in next year even as the actual amount rises to Sh327.36 billion.

The estimates show that Parliament has been allocated Sh27.1 billion, judiciary Sh15.7 billion, the national executive Sh1.2 trillion, while county governments will get Sh258 billion in addition to Sh3.7 billion conditional transfers.

Some Sh6.0 billion has been set earmarked for Equalisation Fund while the Constituency Development Fund (CDF) will get Sh33.4 billion.

Constitutional commissions and independent offices will get Sh12.68 billion while the Consolidated Fund Services – which is used to finance constitutional offices and debt repayments – will get Sh436.21 billion.

The cabinet brief identified other key intervention areas, which are also captured in the Budget Policy Statement 2015/16, as leasing of medical equipment, the road annuity programme, NYS reengineering and youth empowerment, construction of sports stadia, land titling and slum upgrading programme.

The cabinet briefing says the estimates are premised on the expectation that the economy will grow at 6.9 per cent before picking up to 7.0 per cent in the medium term. The inflation target remains at five per cent.