A budget is more than just a series of numbers on a page; it is the embodiment of our values” these words of Barack Obama stand true in America and across the world today. On 18th January 2023, the draft Kenya budget policy statement for 2023 was issued.
The Kenya Revenue Authority is expected to raise over Sh3 trillion. The draft budget policy statement outlines that in order to get the target collections, the taxman will have to reduce gaps in value-added tax and corporate tax, in addition to widening the tax net on the informal sector which has Sh2.8 trillion revenue potential.
The projected total revenue of Sh2.8 trillion will contribute a portion of the planned expenditure of Sh3.64 trillion. Thereby leaving a Sh695.2 billion deficit, which will be financed by borrowing Sh198.6 billion externally and Sh496.6 billion from the local market.
The draft budget policy statement for 2023 promises to deliver much-needed economic recovery and inclusive growth. However, is it prudent to increase the tax burden on the already strained pockets of the population?
In India, on 1st February 2023, the government unveiled a $549 billion spending budget for the fiscal year starting April 2023. India’s Finance Minister Nirmala Sitharaman in the very elaborate union budget highlighted seven priorities. The priorities complement each other and work in synergy.
Inclusive development, reaching the last mile, infrastructure investment, unleashing the potential, green growth, youth power, and financial sector. The government philosophy has facilitated inclusive development covering in specific farmers, women, youth, and overall priority for the underprivileged.
Tourism
What Kenya can borrow is the focus on encouraging tourism, which is one such highlight as per Finance minister Nirmala Sitharaman who stated “the country aims to increase attraction for domestic as well as foreign tourists as the sector holds huge opportunities for jobs and entrepreneurship for youth in particular.
Promotion of tourism will be taken up on mission mode with the active participation of States, the convergence of government programmes, and public-private partnerships.” Green growth is in focus globally and India is implementing many projects for green energy, green farming, green mobility, green buildings, green equipment, and policies for the effective use of energy across various economic sectors. These green growth efforts help in reducing carbon emissions and provide for large-scale job opportunities.
The right budget can be a guide to success. The government budget shows the planned expenditure programmes and expected revenues from taxes and other sources during a particular year. The government’s functions in the economy are guided by budget policy. The important functions of budget policy are allocation where the policy is concerned with the provision of social goods.
Distribution function ensures a fair or just state of allocation of income and wealth in the economy. Stabilisation function is concerned with maintaining high employment, a reasonable degree of price stability, soundness of balance of payments, and an appropriate rate of economic growth.
The budget contains a list of specific programmes including education, defense, welfare, healthcare, and infrastructure, that need government spending as well as tax sources, such as income tax, commodity tax, and so on. Naturally, all economies aim to achieve a budget surplus. However, most are facing budget deficits.
As per the Central Bank of Kenya’s statistics “Kenya recorded a Government Budget deficit equal to 5.80 per cent of the country’s Gross Domestic Product in 2022”. The next budget will focus on narrowing this.
Budgets can be balanced or unbalanced. In a balanced budget revenues and expenses are equal. Neither a budget deficit nor a budget surplus occurs. In an unbalanced budget revenues and expenses are not equal. When revenues exceed expenditures we have a surplus budget and when expenditure exceeds revenues we have a deficit budget.
Major infrastructure projects
In a traditional budget, an incremental approach is used whereby programmes and projects from previous years are automatically continued. Kenya has many major infrastructure projects ongoing. In traditional budgets, these initiatives could continue receiving funding to completion.
A zero-based budget on the other hand starts from zero, and every government function or item is analysed for its needs and costs. Existing programmes and activities are not automatically funded. Instead, their continuation as a part of the annual budget process must be justified.
A performance budget considers the results or performance of a project and thus ensures cost-efficient planning. The process is very detailed and result-oriented in its approach, and it is mainly used by organisations and ministries involved in developmental activities.
If a programme budget is to be applied, major government functions are divided into specific activities, and projects. Emphasis is laid on the size, implementation, costs and benefits involved. Funds are then allocated accordingly.
In the United States (similar to India), the government budget is divided such that each part highlights the specialised functions of the government this was termed the multiple budgets. Thus a unified budget was needed for understanding the overall effect on the economy. A unified budget includes receipts from all sources and for all the programmes of the federal government, including both on and off-budget programs.
It is a single version of a government fiscal status based on the sum of all government activities. When these fund groups are consolidated to display budget totals, inter-fund transactions are deducted to avoid double counting.
A functional budget includes income and expenditures that are applicable to a function or department. It is an accrual-based budget and it mentions the revenues and expenses for government functions on an accrual basis. It excludes receipts of expenditures that do not belong to the government. The cash budget is a detailed plan that shows all expected sources and uses of cash.
Revenue expenditure is spent on maintaining existing levels of public service and is divided into planned and non-planned expenditures. Planned expenditures include spending on social and community services such as education, health, agriculture, industry, power, transport, and communications. Non-planned expenditures could include capital and revenue expenditures, and make up a significant portion of the budget.
The Kenyan budget must focus on prioritising funding to address the most pressing issues including enabling food security and provision of subsidies to reduce the high cost of essentials. Increasing taxes is not a beneficial strategy in the long run. Additionally, measures must be taken to ensure the Kenya shilling is strengthened to prevent further erosion of the country’s wealth. BY DAILY NATION