08 Sep

RESPONSE TO THE FY 2018-2019 BUDGET


Thirdway Alliance Kenya has reviewed the 2018/19 Budget and we are worried that there is a huge disconnect between the budget, Jubilee’s big four agenda (hereinafter “the Big 4”) and the expectations of Kenyans. Even as we make our views here, we note with concern that the Finance Bill 2018 that ought to operationalize the budget is still missing. 

It is now obvious that the Big 4 agenda will remain a pipe dream because there is no clear roadmap that will guide the implementation of the agenda as enumerated here below. In fact, noting the devastating impact of corruption even on the Big 4, Jubilee Administration through this budget should have focused on how to end theft of public money currently being stolen in billions of Kenya shillings from every state department as well as at the counties. With the saving of billions of Kenya shillings, today being stolen left, centre and right, Jubilee Administration would then comfortably achieve the big 4. We cannot have a budget when billions in the same budget are stolen. We need to see measures that would stop the theft and looting of public money, which has a direct impact on development programmes especially the Big 4. However, here below are our views on the budget:

Food Security 

The proposals on food security are wishy washy and are premised on the same old narrative. The proposals fail to appreciate that managerial short comings and theft of public money in the food sector are major causes of food insecurity. As much as government may try to blame drought and other natural calamities as causes of food insecurity, it is a fact that Kenya has been experiencing serious food shortages in all election years since 1992. The Budget is silent on government’s policy on importation of cheap agricultural and animal produce that undermine the stability of our food industry. The proposals lack clear targets on what volumes of food will be produced. Our proposal would be to end corruption in the food sector, especially relating to fertilizers, cartels at the cereal boards, restrict sugar importations and other food stuffs. Instead, we empower the Kenyan farmer through subsidies to produce enough food. The produce from our farmers must have a ready market, and when they sell to government, they must be paid promptly. 

Affordable Housing

The budget failed to explicitly define what affordable housing or low-cost houses are. We see a confused government that is still struggling to figure out how to implement this agenda. Without having a clear definition of the deliverables, it is now self-evident that the government is attempting to implement a proposal that they have no clue about. What is a low-cost house? What is a low-cost house to the wealthy ruling elite is not a low cost house to the working middle class and the poor? We are disturbed that the government seems not to have any understanding of what are the factors that determine the cost of houses. Affordability is a relative term and must be made in reference to either the national average income or the income distribution. Furthermore, even assuming that this proposal goes through, it is not clear to us who the beneficiary of the low-cost housing would be. Is it the employee contributing the 0.5% or the 1%? This is not clearly defined by the government in the budget. 


More specifically, the government fails to:

  1. Address how they will mitigate the high cost of land in urban areas as this is the greatest hindrance to development of cheap and affordable housing. 
  2. Define what low cost building is.
  3. Explain how reducing corporate tax to developers will translate to construction of low cost-houses.
  4. Demonstrate how the proposed amendment to the Employment Act for employers to contribute 0.5 % and deduct a similar percentage from the employee salary will enable employees to own the said low-cost houses.
  5. Make public details of the modus operandi of the low-cost housing schemes. 

Manufacturing

We welcome and support the government’s proposal to increase duty on imported textiles, shoes and paper. However, the proposals in the budget clearly demonstrates that boosting manufacturing remains an abstract idea to the government for the following six (6) reasons: 

  1. Besides establishment of industrial parks, the government has not stated the kind of products that they expect each industrial park to specialize in or to produce. 
  2. Lack of deliberate effort to ensure full processing of tea, coffee, oil, Titanium amongst others that are readily available in Kenya before export and instead government wants to focus on invalid dreams like re-introduction of automobile assembly. When government allows the exportation of raw materials and semi-processed products, there is no way Kenya will ever industrialize. We expected the budget to ban or restrict the exportation of our raw materials and semi-processed products. In fact, using the oil product as an example, we expected that the budget would allocate resources towards the building of a refinery that would ensure we have an oil industry, create jobs, reduce retail cost for petroleum products and to improve balance of trace. Instead, we now see crude oil being exported out of Kenya. This does not make any economic sense. 
  3. Failure to comprehend that allowing recovery of 30% of cost of electricity from corporate profit will not mitigate cash flow strain on the operation of manufacturing entities. In fact, our proposal and expectation were that government, through this budget, would liberalize (from current monopoly) power production and supply. That way, the cost of electricity tariffs to manufacturers would automatically go down, and hence improves growth of the manufacturing sector. Going by the proposals in the budget confirms that the government’s much overrated expansion of power generation would not result to lower tariffs. 
  4. Lack of a clear plan to boost agro-processing
  5. Lack of a clear plan on technical skill development to support industrial growth. Most TIVET institutions lack workshops with modern machinery and tools. The intention to recruit 2000 instructors is welcome but will not achieve much if the institutes will not be equipped with modern equipment. 
  6. Lack of clear plans on the revival of the textile industry. How does the government plan to ensure there is adequate production of cotton and silk? Without raw materials, the revival of the textile industry will remain a pipe dream.

Affordable Healthcare for all

While we applaud the initiative to launch a comprehensive NHIF medical cover for secondary school students, we wish to point out that the policy is discriminative as it does not cover primary, college and University students. The government’s proposal in that regard does not make sense at all and needs to be revised to be inclusive of all Kenyans who cannot afford healthcare. 

The proposal to introduce a Robin Hood tax of 0.05% on amounts of at least 500k through banks and the increase in excise duty from 10% to 12% on mobile money transfers is not only misguided but inappropriate. A large percentage of the national budget that should be funding public universal health care has been funding the lifestyles of a few elites. We therefore propose that the Jubilee government stops theft of public money and directs the proceeds of tax revenues to fund universal health care for all Kenyans.

General observations

We are appalled that the through the 2018/2019 budget proposals, the government is determined to make life of ordinary Kenyans a nightmare once more. Various budget proposals, as listed below, are a clear testimony that the government has little or no regard for the welfare of the common mwananchi or “Wanjiku” as we are so often referred to. We have picked, at least, the following three proposals: 

  1. The Cabinet secretary failed to disclose that the Tax Laws amendment Bill is already before parliament and proposes to move Unga, Milk, Agricultural pesticides and LPG from zero-rated to tax-exempt status. The Bill once approved, will raise the consumer prices of the affected products, and the raise will be borne by the ordinary Kenyan.
  2. The Jubilee government has perfected the art of misinforming the public on Division of Revenue between the National and County governments. The National government continues to deny counties their rightful share of revenue. For example, in the Division of Revenue Bill No. 7 of 2018, division of revenue was based on the wrong and unconstitutional audited revenues of KES 937 billion for the FY 2013/14 instead of KES 1.4 trillion for FY 2016/17. The net effect of this was to deny counties over KES 150 Billion in revenue share in this FY 2018/19. Therefore, the difference of KES 500 billion has not been shared between the two levels of governments, which revenue we now suspect has been allocated to some National government departments for the looters or to be stolen through fictitious contracts as we have seen in the cases of NYS (both Seasons 1&2), Health department, KPC, KPLC, NCPD amongst others. 
  3. The government has demonstrated lack of commitment to fight theft of public money (sanitized as corruption) and has conveniently chosen not to allocate funds for expansion of jails to accommodate the thousands of public servants who steal public funds in National and County governments funds, especially in the period 2013 to date.  

Public Wage Bill  

  1. The CS proposed implementation of salary review as a means of containing the public wage bill. While differing with this position by the CS, we would have expected the government to use provision of Articles 187 and 189 to streamline staffing in both levels of government. This would result to huge savings that would drastically reduce the already bloated public wage bill. 
  2. We are shocked that a government that is still struggling with a huge wage bill has the audacity to increase parliamentary budget with over KES 10 billion to KES 36.8 billion. We are, however, not surprised at this wanton impunity since parliament has been conspiring with the executive to deny counties their rightful share of revenue leaving the lion’s share to national government and later authorizing allocation of excessive funds by way of supplementary budgets to government departments to facilitate looting like in the NYS cases and others.

Further Observations

  1. Increasing excise duty on illuminating Kerosene is misguided. The CS should have introduced severe penalties and measures to monitor retailers of the petroleum products. It is unacceptable to punish the low-income earners for the sins of rogue businessmen/women. This proposal confirms that the government is not keen on cracking down on the looters of the economy at the expense of the interests of the common mwananchi. 
  2. Introduction of presumptive income tax in the informal sector. This is a misguided initiative and contradicts the government’s assertion on reducing cost of doing business in Kenya. The treasury would have simply amended the Income Tax Act to require all tax payers to submit tax returns that are supported by accounts prepared by Certified Public Accountants.
  3. The buy Kenya build Kenya policy must also apply to road construction and other services. There is no clear guideline on how to stop importation of unnecessary goods and expertise. We must stop exporting jobs and profits overseas. As much as we appreciate the expertise international contractors bring on-board, the government should make it mandatory for those contractors to up-skill and transfer knowledge to our local professionals and bridge the skills gap in Kenya. We are unable to comprehend how the Chinese are still building roads in Kenya after building the Thika super highway ten years ago; or their continued stay in the construction of the SGR, 4 years later. We have enough engineers to do that job. 
  4.  Whereas the CS proposed to make procurement as transparent as possible, the proposed publication of information on procurement contracts may not be very useful. We propose that the information published should include the information on all tenderers per contract and also show the bid prices from each prospective supplier. This will enable the public to monitor how the costs of contracts and whether the government is procuring from cheap suppliers. The current proposal is opaque. 
  5.  It is encouraging to note that the CS proposes to allocate KES 1 billion to scale up promotion of tourism. However, he did not disclose the target markets, expected tourist numbers and projected revenues. It is unfortunate that the government has not allocated any funds to improve access roads to most of the national parks like the Narok- Masai Mara road, the Embu- Marimat- Kora National Park Road, Namanga – Amboseli Road, amongst others. There was no mention of how other infrastructure like telephone network will be improved in all parks to ease communication and facilitate ease of mobile money use.
  6. Whilst we congratulate the government for creating a new fund to be funded by proceeds of taxation from betting and gaming activities, it is not clear how the funds will be utilized. The government only allocated KES 200 Million for construction of a sports academy and KES 300 Million for completion of the ultra-modern National Library. This is not adequate to encourage more sporting activities. Furthermore, the 2018-2019 Budget did not sufficiently embrace the film, arts and culture industry. 

Conclusion.

In the overall, we are concerned that this budget is leading Kenyans into a debt trap. Public debt is projected to increase to over KES 4.5 Trillion and the repayments are consuming half of the public revenues. The government can only rely on debt to finance most of the development projects. These budget proposals clearly demonstrate that Jubilee government lacks both vision and capability to steer this country to prosperity. 

Delivered at Nairobi this 19th Day of June 2018 


Ekuru Aukot

Party Leader