BusinessPeople Daily

Tough times at Treasury as revenue crunch bites

James Momanyi @jamomanyi

The National Treasury has rolled out austerity measures that will entail slashing budgetary allocations in the current financial year (2017/18) in a bold move informed by revenue shortfall. County governments will lose about Sh17 billion from the Sh302 billion allocation approved in March last year.

On its part, the national government has also instituted cost cutting measures and budget consolidation that will see more than Sh60 billion taken off the books in ministries, departments and agencies (MDAs) as effects of revenue collection slowdown disrupt expenditures of both levels of government in the remaining three months to the next financial year that begins on July 1.

Treasury Cabinet secretary Henry Rotich (pictured) and principal secretary Kamau Thugge, who appeared yesterday before the Senate Finance and Budget committee chaired by Mandera Senator Mohamed Mohamud, explained that when they submitted the budget for approval earlier last year, they had made assumptions that all the revenue for the year would be collected and shared as agreed.

But the outlook now looks unfeasible due to a depressed economy that has affected revenue collection. “The 2017/18 Division of Revenue Bill of Sh302 billion for counties that was agreed before the elections was based on assumptions.

But since July last year we have had a revenue shortfall because of the drought and electioneering which lowered collection of Value Added Tax and other taxes,” said Rotich.

In the Sh2.631 trillion 2017/18 budget passed by Parliament in March last year, Treasury projected ordinary revenues at Sh1.549 trillion up from the projected Sh1.37 trillion in the 2016/17 financial year.

However, Treasury revised the targets downwards to Sh1.45 trillion for the full-year. Unfortunately, last month Kenya Revenue Authority (KRA) said that it missed its half-year revenue collection target by Sh68.3 billion after it collected Sh656.9 billion against a target of Sh701.7 billion in the period between July and December last year.

“We have discussed with KRA on how to bridge the deficit by tightening the tax net on domestic and customs revenue but we will still have a deficit,” said Rotich.

“The only option available is to ask both the national and county governments to review their budget, institute austerity measures and prepare supplementary appropriations because money is not coming as expected.

We will table the Division of Revenue Amendment Bill to lower the Sh302 billion allocated to county governments because no extra revenue is forthcoming. All levels of government must reduce expenditure.”

Thugge said that the projected shortfall of ordinary revenues in the Budget Policy Statement presented to Parliament was Sh74 billion but collection has deteriorated further in the recent months and will push the deficit to around Sh84 billion.

“We will have to share the shortfall by reducing the county allocation by between Sh15 billion and 17 billion and the national government by up to Sh60 billion. We must undertake budget consolidation and initiate austerity measures because Kenyans are wary of increasing the deficit through borrowing,” Thugge told the committee.

Attempts by the Senate members Mutula Kilonzo Jnr, Rose Nyamunga and Senator Farhiya Haji to ask Treasury to reconsider the proposal to slash the budget and instead pressure KRA to improve its revenue collection were met by unmoved Treasury mandarins. “It is hard to persuade the Senate to support the move unless you want to say the government is broke.

Furthermore, the government and Council of Governors through the Intergovernmental Budget and Economic Council have already agreed to increase the shareable revenue to Sh314 billion in the 2018/19 financial year.

It’s a contradiction!” Kilonzo said. However, Rotich insisted that both the national government and counties must share the projected budget deficit by scaling down on some operational expenditure like travel and entertainment.

“If you were to tell us to disburse 100 per cent to the Judiciary, Executive and Parliament and also insist that the counties should get their full share and I can’t get the revenues and you do not want me to touch borrowing, it’s impossible.

I mean something must give way. If, for instance, they were to construct a building for the county assembly, that project has to wait,”Rotich said. The Treasury officials had been invited by the committee to explain why funds disbursement to the counties had lagged behind by four months since the last disbursement in October last year.

Rotich said that disbursement had been delayed by a legal hitch that was occasioned by the late amendments to the County Allocation of Revenue Act by the Senate because of last year’s General Election, which also delayed the preparation of disbursement schedules.

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