Eyes on widening fiscal deficit as Treasury banks on Big 4 programmes

The big 4 agenda by the jubilee government emerged big winners in Rotich’s Sh3 trillion budget amid concerns of an enlarging fiscal deficit, the difference between revenue and expenditure difference.

The key development areas manufacturing, universal health care, food security and affordable housing all received tax incentives and favorable allocations.

Boosting the four pillars is expected to create over one million jobs by 2022. The irony is the government’s revenue generating plans involves more taxation to key sectors of the economy thereby increasing the cost of production raising concerns that this might be an exercise in futility.

Hit hard by the revenue generation plan are the middle income earners and the poor households, with the textile, mobile money transfer and gambling industries having to shoulder new and heavy taxes.

Ordinary revenue is expected to raise to Sh1.949 trillion from the projected Sh1.659 trillion, this is expected to achieved by netting more revenue from steel and iron imports, paper, timber, vegetable, fuel duties for guzzlers among other tax proposals.

The taxman’s collection as at the end of April stood at Sh1.095 trillion missing the target by slightly over Sh200 billion, the revised Sh1.44 trillion tax target at the end of the year therefore remains a far-fetched dream.

The need to include the informal sector in the tax net has been under the spot light to ease the tax burden on the formal sector. The cabinet secretary proposed to amend the income tax act and replace it with a presumptive tax, it will however be interesting to see if this proposal will finally yield the long awaited results.

External financing and other domestic financing is expected to fill the Sh559 billion gap to make the Sh2.5 trillion expenditure plan possible. With domestic debt to GDP ratio standing at 57 per cent in December 2017. Experts have raised the red flag over treasury’s high appetite for debt.

According to the CBK total debt stands at Sh5 trillion as May 2018, the highest ever in the country’s history. It therefore proves a delicate balancing act for treasury in a bid to finance government’s activities.

In the Sh2.55 trillion expenditure plan, 61 per cent has been allocated to recurrent expenditure, questioning the government’s promise of reducing the country’s wage bill. Development expenditure gets Sh625.1 billion (24 per cent) and a paltry Sh376.4 billion goes to the county governments.

With the division of revenue act 2018, coming into effect from 11th April. The total sharable revenue in the Financial year between the national and the county government in the coming financial year stands at Sh1.688 trillion, meaning the county equitable share is Sh314 billion this represents an increase from the previous allocation but Mr. \

Rotich in his statement insisted county governments have to deal with the three key challenges facing them most importantly, the weakness in public financial management that leads to leakages and wasteful spending.