Treasury plans to cut the equitable share to the devolved units in the year starting July to Sh310 billion from Sh314 billion.
The Parliamentary Budget Office says the reasons given by the Treasury for the cut have no basis in law and contravenes Division of Revenue Act 2018.
The Parliamentary Budget Office says the Treasury broke the law in slashing allocations to the counties in proposed expenditure plan for the year starting July 2019.
Treasury secretary Henry Rotich has proposed to cut the equitable share to the devolved units in the year starting July to Sh310 billion from Sh314 billion in the current year, disregarding Commission on Revenue Allocation’s (CRA’s) recommendation of Sh335.70 billion.
Mr Rotich, in the Budget Policy Statement (BPS) submitted to the National Assembly last month, cites shortfalls in revenue at the national level as the reason for the cut in cash to the counties.
The Treasury further argues the move is in line with projected reduction in fiscal deficit to five percent in the 2019-20 financial year from 5.9 percent in the current year ending in June as well as rising debt service costs which have eaten into revenue.
The body, which advises legislators on financial, budgetary and economic matters, however, argues the reasons given by the Treasury have no basis in law and contravenes Division of Revenue Act 2018.
The Budget Office says the revised basis for sharing cash between the two levels of government is likely to cut cash transfers to the 47 counties.
“The ‘revised’ basis leading to a lower base …is not based on any law or approval by Parliament (National Assembly and Senate) and further contravenes section 5(1) of the 2018 DORA (Division of Revenue Act) in which any shortfall in expected revenue is to be borne out by the national government,” the parliamentary unit says in its latest analysis of the 2019 BPS.
“In principle, this legal provision is in line with the sum of criteria outlined in the constitution (Article 203 (1)) of ensuring “desirability of stable and predictable allocation of revenue’.”
CRA said last December its recommendation to increase the allocations to the counties was based on adjustments to compensate for inflation using an actual three-year average of annual inflation factor of 6.91 percent.
Overall, total budget for the counties will drop to Sh371.60 billion from Sh376.48 billion in the current year if the parliament approves Treasury’s proposal.
“In the proposed budget, the equitable share to counties is 2.7 percent of the GDP meaning that the devolved units are not feeling growth in the country's economy. In fact the higher the growth in economy, the less counties receive,” CRA chairperson Jane Kiringai told the Senate Finance Committee last month when she protested the Treasury’s proposal.
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