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Business

How Ruto’s first budget will affect families and businesses

Economy

Wednesday January 25 2023

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Former Treasury Cabinet Secretary Henry Rotich holding the briefcase at National Assembly ahead of the presentation of the budget statement for the fiscal year 2017/18. FILE PHOTO | DENNIS ONSONGO | NMG

Treasury last week released a draft document that broadly outlines strategic priorities and policy goals that will guide the preparation of the budget for the William Ruto administration’s first year in power and in the medium term.

The draft 2023 Budget Policy Statement (BPS) highlights budget ceilings for national and county governments, broad sources of revenue and key areas of focus.

We look at how President Ruto’s first budget compares with that of his predecessor Uhuru Kenyatta’s.

How much will expenditure increase?

Just like the previous administration, the current one plans to maintain an expansionary budget.

However, the growth in the budget for the financial year starting July is expected to be the slowest in four years at Sh251 billion from the current Sh3.39 trillion estimates for the year ending June 2023.

Overall, Dr Ruto’s first budget is estimated at Sh3.64 trillion. It will, however, grow faster in subsequent years to Sh3.97 trillion in the financial year 2024/25, Sh4.43 trillion in 2025/26 and Sh5.1 trillion in 2026/27.

Which sectors will be the biggest beneficiaries?

Generally, there is little difference in broad sectoral budgetary allocation between Dr Ruto’s priority sectors and his predecessor’s.

Dockets under the General Economic and Commercial Affairs sector like Industry, Trade and Tourism will get the biggest raise in budget for the year starting July compared with allocation for the current year.

The budget for the sector, key in facilitating employment opportunities and wealth creation, is forecast to increase 30.20 percent to Sh33.89 billion.

It will be followed by National Security at 24.15 percent to Sh220.75 billion, Health (21.03 percent to Sh148.29 billion) and Environmental Protection, Water and Natural Resources (14.65 percent to Sh122.88 billion).

The budget ceiling for the Education docket, the biggest single spender of taxpayers’ cash, will be raised 6.62 percent to Sh580.57 billion, while that for Public Administration and International Relations is up 4.07 percent to Sh371.4 billion.

Which sectors will have little to cheer?

The budget for the Energy, Infrastructure and ICT sector — the enabler for economic activity — will be the biggest casualty in Dr Ruto’s first budget since taking power last September.

The sector is critical for socio-economic transformation and includes key dockets such as roads. Its budget ceiling has been trimmed by 2.33 percent to Sh398.25 billion but is projected to start rising again in subsequent years, going back to a trend witnessed under the two previous administrations of Mr Kenyatta and Mwai Kibaki.

The expenditure projection for Agriculture, Rural and Urban Development, a key driver of socio-economic development as the biggest contributor to the GDP, is also expected to fall 1.86 percent to Sh67.67 billion.

Who will be raided for additional revenue to fund the rising budget?

Dr Ruto has made it clear his administration will be looking at a tax policy where the super-rich contribute the highest revenue to the government followed by consumption ahead of salaries and sales made by traders.

The draft Budget Policy Statement shows the main targets will be businesses, rich families and consumers as the Kenya Revenue Authority looks to raise an additional Sh375 billion in ordinary collections to Sh2.56 trillion compared with the Sh2.19 trillion goal for the current fiscal year.

Value-added tax, borne by final consumers, is forecast to climb 19.67 percent to Sh703.3 billion from the targeted Sh587.7 billion this fiscal year, while income tax is seen growing 19.34 percent to just shy of Sh1.2 trillion.

How does KRA plan to net rich tax cheats?

The taxman will be seeking to integrate its systems with that of mobile money transfer platforms like Safaricom’s M-Pesa to nab wealthy tax cheats.

Measures aimed at roping dodgy companies and families into the tax net include mapping of rental property in Nairobi and Mombasa and enhanced use of technology and intelligence sharing at Kenya’s border points.

The Treasury estimates performance in corporate income tax is 67.8 percent of its potential. The KRA further plans to fully roll out the Internet-enabled Tax Invoice Management System, whose implementation started in the sunset days of Mr Kenyatta’s administration, to catch rogue traders.

Full transition to electronic ETRs, the Treasury argues, is a game-changer in closing revenue leakages estimated at 38.9 percent of the potential receipts.

How will the hole in the budget be filled?

The Treasury estimates budget deficit in Dr Ruto’s first budget will fall to Sh695.2 billion from an estimated Sh849.2 billion in Mr Kenyatta’s final expenditure plan for the current year.

This will be financed through Sh198.6 billion from foreign markets where interest rates remain elevated, while the remainder of Sh496.6 billion will be borrowed domestically.

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Jay Ndungu

Jay is a computer scientist and journalist with a passion for the intersection of technology and society. He has a background in computer science, developing a deep understanding of the technical aspects of the industry, including programming languages and software development methodologies. Currently, He writes for Nairobi Times, covering a wide range of topics including technology, politics, sports, and entertainment. With his unique combination of technical knowledge and journalistic experience, Jay brings a unique perspective to the stories he covers, able to explain complex technical concepts in an easy-to-understand manner. His work is dedicated to bridge the gap between technology and society, and to make people more aware of the potential of technology to make the world a better place.

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