The long and short of Rotich’s budget

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BY ANTONY MUTUNGA

Last month the government was once again at a crucial point as the 2017/2018 financial year was coming to an end. As always the government through the treasury had to present the budget as they welcomed the 2018/19 financial year that started this month. However, unlike before, this time around the budget came at a time when the government has more than one main objective to achieve.

With the government working towards reducing the fiscal deficit so as to reduce the current public debt while also focusing on the sectors in its Big Four development Agenda; universal healthcare, food security, manufacturing and affordable housing, it was clear where the budget would focus on. When the Treasury Cabinet Secretary, Henry Rotich read the Sh3.07 trillion budget, the biggest the country has ever had, it was no surprise that much of the allocation was directed towards handling these objectives.

The current budget has grown by Sh430 billion to Sh3 trillion from 2017’s Sh2.64trillion. The Sh3.07 trillion 2018/19 budget has seen the national government getting the lions share as it was allocated Sh1.7trillion in order to fund its big four agenda and to run its operations while the Consolidated Fund Services (CFS) whereby all the raised or received by or on behalf of the national government is paid was allocated Sh962.5 billion. The counties were allocated Sh372.7 billion. Parliament got Sh42.5 billion while the Judiciary got Sh17.7 billion.

After facing headwinds in 2017, the economy only managed a growth of 4.9% slowing down from 5.9% in 2016. However, in 2018 the government now expects something different as they forecast a rebound to 5.8%. During the presentation of the budget at the August house, Henry Rotich said, “We project the economy to grow by at least 5.8 percent this year supported by growing investor confidence, improved agriculture activities bolstered by favourable weather…and improved demand for exports due to improved global and regional growth,” said the CS, Treasury during budget speech.With the government identifying the Big Four Agenda sectors as the most important sectors to ensure an increased growth, it has focussed much on them in the budget to ensure that they have all the requirements needed to help the economy grow.

Manufacturing

It is one of the main industries in the country’s economic development in terms of its contribution towards the GDP and job creation. However, the sector has lately been on a downward spiral as according to 2018 economic survey by Kenya National Bureau of Statistics (KNBS) it’s real gross value added increased only by 0.2% in 2017 compared to the previous year where it had increased by 2.7% despite credit to the sector increasing from Sh275.8 billion in 2016 to Sh311.8 billion in 2017.

Therefore in order to reignite the sector and increase its contribution to the GDP to 15% by 2022 as well as create more jobs, the government is moving to establish leather parks and textile industries as well as reviving the blue economy and re-establishing the manufacturing of construction materials as well as agro-processing. In addition, the government plans to promote the textile and footwear industry, which have been affected by imported second hand goods, by introducing a new import duty of Sh500 ($5) per unit or 35% whichever is higher.

Additionally, in order to promote the local industry, the government has increased the import duty on paper and paper products as well as on iron ore and steel from 25% to 35% as well as reducing the cost of electricity by proposing to reduce the cost of off peak power by half. It has also moved to establish special economic zones as well as offer incentives to those willing to establish in these zones. In order to achieve this, the sector has been allocated Sh2.4 billion.

Universal Healthcare

Various graft scandals as well as strikes that have seen the sector have a negative outlook have recently hit the health sector hard. However, the government aims to change this as it works towards achieving universal healthcare for every Kenyan by 2022. The government aims to reconfigure the National Hospital Insurance Fund (NHIF), which is already underway as it recently introduced a comprehensive NHIF medical scheme for secondary school students, and to expand the current free maternity programme to both private and mission hospitals while at the same time training more doctors.As such, Sh2 billion was allocated to free primary healthcare, Sh2.5billion to the rollout of universal health coverage in four counties (Kisumu, Nyeri, Isiolo and Machakos) on the pilot basis and Sh13.7 billion being allocated to further support the free maternal healthcare.

Affordable Housing

The urban housing sector has a deficiency of 200,000 housing units annually. Currently only 50,000 units are being constructed yearly. This has seen the government move to foster partnerships with the private sector. For instance, developers who will construct 100 units annually will get their corporate taxes reduced to 15%.

Additionally, government in conjunction with private sector and development partners has formed the Kenya Mortgage Refinance Company to help in the access of long term finance for home loans. The government is also moving to have the Employment Act amended so that employers and employees will contribute 0.5% of the gross month pay and 0.5% of their monthly gross earnings not exceeding Sh5, 000 respectively to the National Housing Development Fund.

Food Security

Agriculture has long been the backbone of our economy but recently the sector has been on a decline as according to the 2018 economic survey, in 2017 the sectors’ real value added growth reduced to 1.6% from 5.1% in 2016 and this was the case even after total value of marketed production increased by Sh33.6billion in 2017.In order to ensure food security and nutrition, the government has moved to reduce the cost of food in the country, enhance production in large scale and promote small-scale farmers in production. With this, the government plans to place 700,000 acres under various crops such as maize, rice and potatoes. There is also a plan to expand irrigation schemes and to increase as well as promote livestock and crop insurance. Additionally the government looks to invest in contract farming and in agro hubs as well. The sector has been allocated Sh20.25billion in order to ensure that all Kenyans are food secure by 2022.

Apart from the four, the government has also focussed on various sectors that will support in ensuring that the Big Four are able to reach their target so as to help the country grow. This include the education sector which has been allocated Sh444.1billion to expand the technical vocational education training infrastructure, which has gotten Sh16billion of this share to hire new training instructors while universities have been allocated Sh91billion. On the other hand, the ICT sector has also been allocated a large sum with Sh310million going towards digital migration while Sh11.9billion goes towards the digital literacy programme.

However, apart from focussing on the Big Four agenda, the government has also looked towards the growing public debt which currently stands at Sh4.9trillion according to the Central Bank of Kenya (CBK) of which, part is set to mature and must be paid in this current financial year. With a budget to finance including a Sh870 billion debt set to be paid, the government’s spending target came to stand at about Sh2.56billion.In the 2017/2018 financial year a budget deficit of 7.2% of the GDP was reported. In order to reduce this to the projected 5.7% deficit expected this financial year, the government has amended several tax measures in order to collect more revenue. It removed some products from the tax exempt status and moved them to standard rate. The products affected include medication containing alkaloids or derivatives and imported garment and leather or footwear raw materials.

On the other hand, the government also moved some products from zero rated to tax exempt such as raw materials used in the manufacture of animal feeds, materials used in the construction of grain storage facilities and products, imported or locally purchased, for the assembly of computers. It also made changes to the Tax Procedures Act (TPA) such as increasing the interest on the late payment of taxes from 1% to 2%, reintroducing the 20% penalty on late payment, reducing the penalty of late filing from Sh20, 000 to Sh2, 000 or 5% of tax due, which is higher and moving the penalty for late filing of VAT from the VAT Act to the TPA.

Kenya’s current budget is bigger compared to the other countries in East Africa with Uganda’s standing at Sh850 billion (Ushs32.7 trillion) while Tanzania’s stands at Sh1.4 trillion (Tsh32.48 trillion).