Welcome respite for burdened taxpayers
Posted Thursday, June 14 2012 at 20:00
This year’s budget speech did not contain many tax measures.
That is why some commentators rushed to conclude that the statement read by Finance minister Njeru Githae was an election year budget.
There were no price increases. Even the so-called ‘sin taxes’ – duty on beer, cigarettes and hard liquor, did not appear in the budget statement.
Mr Githae was not engaging in populism. As a matter of fact, taxation measures have been disappearing from budget speeches gradually for some time now, for the government has been gradually moving to a regime where tax measures are not just applied to raise revenues but as a means of achieving specific polices.
For instance, when you are faced with food shortages, you remove duties on imports.
When the prices of staple foods suddenly increase as a result of supply-side pressures, you respond by tweaking taxes so that you can cushion vulnerable groups.
The old system where most taxation measures were crammed into the budget speech and announced in one day is not in line with contemporary best practices.
When tax measures are made the centerpiece of a budget statements, expectations among consumers and producers are built up, creating room for speculation, and rent-seeking behaviour.
The budget is made without gaps. When revenue shortfalls are anticipated, the void is filled through domestic borrowing, grants and loans from bilateral and multilateral organisations, and from international financial markets.
In terms of new ideas and policy direction, Mr Githae’s budget comes across as well though-out.
Though the government will be forced to spend more on elections, the Judiciary, devolution, and the commissions created by the new Constitution, the budget made sure adequate fiscal space was left for infrastructure, education and health.
The security sector
Roads, energy and ports received substantial resources. The budget also allocated more money for free primary education, and the employment of additional teachers, nurses and doctors.
The security sector also received additional resources with more money being devoted to employment of additional policemen.
In terms of the agenda for institutional reforms, the budget came up with several new ideas, especially with regard to the proposal for changes in the regulation of the financial sector.
The idea of a single regulator taking over the functions of the Retirement Benefits Authority, the Capital Markets Authority and the Insurance Regulatory Authority was fresh.
So was the plan to make the Customs Services Department independent from the Kenya Revenue Authority.
Whether the budget will deliver high growth remains to be seen. The deficit of close to 7 per cent of the GDP must be tamed by cutting expenditure on travel and luxury vehicles.