Budgeting on debt?

Borrowing to pay debt is stupid!

Treasury Cabinet Secretary Henry Rotich’s 2016/17 Budget was, without doubt, a difficult balancing act between production and consumption. It can be summed up as a mix-and-match one – best defined as confusing, at least from the consumer perspective.

With less clarity on the well-intentioned objectives and targets, especially as weighed against an unconvincing ministry and agency allocations, it is no secret that the budget has a weak centre and linkage threads.

Ultimately, this implies that the budgetary allocations and spending priorities are not in consonance with budget objectives. Why? As a statement of government receipts and expenditures, Treasury has remained long on politically-correct expenditures while paying little or no attention on receipts and or cutting non-priority expenditures.

Indeed it is not obvious for a keen observer to see potential rapid and balanced economic growth, social justice and equality objectives within Mr Rotich’s budget. What is clear, however, is that it remains a ‘budget on debt’. That debt is not just about ordinary domestic and external borrowing. It is about the low impact, if any, of what previous ‘production-based’ budgets were able to offer in terms of tax relief.

As a country engulfed in huge debt (more than Sh3 trillion), declining foreign direct investments, surging unemployment rates and a pervading sense of hopelessness amongst the youth– failing to align the appropriations with public priority needs is a recipe for a financial meltdown.

Treasury has previously argued that today’s higher consumer taxes will enhance tomorrow’s productivity. It then followed that nearly all consumer foodstuffs, commodities and other key services became heavily taxed. Three years later, the government’s talk on austerity measures has remained just but that. Huge wastage remains the norm rather than the exception.

That Rotich has been the lucky and an un-interrupted occupant of the 14th floor Treasury Building corner office; it is time for Kenyans to ask salient questions. Has his economic growth vision fallen on its’ head or could he be a victim of bad politics? Whichever the answer, the ordinary Kenyan is feeling severe pinch from the high consumer prices whose net effect will be a shrinking spending power. Such an eventuality is a bad omen.

To claim, for instance, that higher taxes on the pro-poor and mass market product like kerosene would lower fuel adulteration is openly deceptive if not plain misleading. Truth is that government regulators, in this case the Energy Regulatory Commission, have the mandate and budget to address such challenges. To punish the consumer for sins of omission and or commission of a regulatory agency is not persuasive.

This question begs the rationale in which regulatory agencies like the Commission on Higher Education, National Environment Management Authority and National Construction have a leeway in imposing and adjusting regulatory fees. On this, it is fair to commend Treasury for singling out a few agencies. But it ought to be a policy across board that regulatory agencies’ fees ought to be subject to Parliamentary approval.

All said and done, Treasury’s move to hinge its budget on debt is akin to living outside its means. Living off public debt is the thrust of the budgetary quagmire the country finds itself. Again, adjusting taxes for excisable goods and services triggers a general rise in pricing. Subsequent inflation pushes up the cost of credit even higher.

This reality is made worse by the obvious domestic borrowing which is poised to address the various financing gaps. Banks will, as usual, make terms difficult for “Wanjiku” borrowers as they lay in wait to lend the risk-free government at higher rates. What is worrying is that many government ‘funds’ running into hundreds of billions are kept in the same banks, which would have been restricted to government-owned ones in the hope that they would reciprocate, by lending at a cheaper rate.

Putting higher tax premium on like motorcycles, food supplements, fuel, tobacco products and alcoholic beverages and cosmetics used by majority of the population, is a clear move to push up the cost of living.

The Jubilee administration pledge to lower the cost of living is far from being realised. With clear projections of higher cost of food, energy, transport and lower employment opportunities, Kenyans must brace for tough times ahead.

Considering that 2017 will be an election year, many investors are expected to hold back their investments. That way, market forces of supply and demand will not work in favour of the consumer. What is more, previous attempts to stem high level corruption in government are yet to bear fruits. Huge allocations to government agencies continue run into waste.