Highlights of IEA Citizen s Alternative Budget 2012 John Mutua Institute of Economic Affairs (IEA) - Kenya
Outline of Presentation State of play in the budget process Interrogation of Budget 2012/13 framework Highlights of Citizens Alternative Budget 2012 proposals Expenditure Taxations Conclusion 2
Status of the Budget 2012/13 process Both the Executive estimate of Revenue and Expenditure & Judiciary expenditure estimates were laid in parliament on 26 th April 2012 while Parliamentary Service Commission was laid on 25 in line with Art. 221. Budget Committee and other Departmental Committees held public hearings between 11 th -14 th May in 17 counties. Consequently Budget Committee has produced a report on the Estimate of Revenue and Expenditure for 2012/12 dated 6 th June. The Minister for Finance will on Thursday, 14 th present a budget statement outlining taxation proposals-how the budget will be financed? 3
Interrogation of Budget 2012/13 framework Status of Public Finance Management Bill, 2012 and implication on the operations of county governments w/o pre-requisite County Revenue Fund & an enacted Devolved Government law. Fiscal parity vs fiscal discipline since both Judiciary and the Legislature will be preparing and submitting their own budget there could be challenges for fiscal discipline and as such need vigilance and accountability from the public. Transition to county governments and whether setting of the legal and institutional structures is on track, accountability systems, among other issues.
Revenue Total revenue projected incl. AiA is Kshs 936.5 billion (24.2% of GDP) up from Kshs777.3 billion ( source: Budget Policy Statement 2012). Despite on going tax reforms; review of VAT; to increase revenue collection, concerns abound: Election related risks and it effects on slowing growth according to past trends in economic and political history, Economy takes time to pick up in anticipation to political changes, Revenue shortfall as tax performance is linked to size of economy and static nature of tax heads (see graph 1 and 2).
Tax performance is closely linked to the size of the economy-source: World Bank 7000.0 GDP per capita 6000.0 5000.0 2000.0 Revenue per capita 1800.0 1600.0 1400.0 4000.0 Kenya 1200.0 Uganda 1000.0 3000.0 South Africa Egypt 800.0 2000.0 1000.0 600.0 400.0 200.0 Kenya Uganda South Africa Egypt 0.0 0.0 1 2 3 4 5 6 7 8 9
Graph 2: Composition of Govt Revenue (%) 8.9 8.9 8.3 6.6 7.4 8.8 9.4 7.6 7.9 35.0 33.5 36.3 37.8 7.5 38.2 11.7 9.6 7.6 8.6 36.4 36.8 24.5 25.8 16.2 15.1 6.6 7.4 2005/06 2006/07 25.9 14.3 7.6 2007/08 26.0 14.3 7.4 2008/09 25.9 13.5 7.5 2009/10 25.1 12.3 6.9 2010/11 25.9 11.8 7.0 2011/12 Import duty Excise duty Value Added Tax Income Tax Other taxes A-in-A
Expenditure Estimated expenditure is Ksh 1.462 trillion ( tn) up from 1.15 tn in the previous year. Maintain austerity measures by focusing public spending on priority areas and rationalization of expenditure Question of addressing absorption capacity How to ensure that government maintains debt sustainability levels of 45% as share of GDP.
Budget proposals highlights Social Sectors Equity of public spending -need to shift focus on health budget to allow more resources to lower level health facilities and for education budget towards primary education for the benefit of the poor. IEA s benefit incidence analysis study shows that it is the rich who benefit from spending on tertiary health facilities and tertiary education.
Youth Affairs Utilise cost effectiveness analysis to inform relevance of Technical, Industrial Vocational & Entrepreneurship Training (TIVET) in providing the youth with more focused technical and vocational skills. Eg. gauging the effectiveness of youth polytechnics vs their cost. Revise Youth Enterprise Fund based on findings from an audit and efficiency exercise
Food security Increase public investment in infrastructure, R&D, and extension services in agriculture and livestock farming. Institutionalize public private partnership Institutionalize public private partnership in agricultural growth and development.
Infrastructure & industry Increase investment in public transport system to enhance overall efficiency. Incentivise the private sector to invest in petroleum storage and distribution facilities. Simplify the VAT and customs duty administrative procedures in the petroleum sector. The need to fast track tabling of Special Economic Zones (SEZs) Bill 2010 to cover wide range of activities than the EPZs
Taxation proposals/1 Unlocking revenue potential Expansion of tax base: GoK need to commission studies to study revenue potential in the informal sector (jua kali sector). Due to the complexity of the sector, there is urgent to have a one stop shop whereby the entities pay the fair share of taxes at the point of licensing. A typical example will be to harmonize the registration system of the Nairobi city council and the KRA database. Increase tax share in cigarettes prices from 55% to WHO recommendations of 70% threshold and in turn meet both public health and generation of revenue objectives Other areas, including revisiting capital gains tax, effectiveness of turnover tax, etc.
Taxation proposals/2 Review tax incentives regime granted to attract FDI and save approximately Ksh 100 Bn per annum ( IEA public forum brief, 2011 & Tax competition report 2012 by TJN-A. Explore widening of PAYE tax brackets stimulate increase in disposable income. PAYE burden falls on the shoulders of just over 2 million employees against labour force (15-64 yrs) of 10mn (see table).
Monthly Income brackets 2010 Taxable income Rate (%) Total wage employees (Approx. by income brackets) 0-10164 10,164 10 373,881.8 10165-19740 19,740 15 976,357.3 19741-29317 29,316 20 650,042.2 29318-38893 38,892 25 12,033.5 38894+ Over 38,893 30 48,134.2 Total 2,060,449 Source: Own computation; KNBS Statistical Abstract 2011, KRA- PAYE Guide, 2007
Some Concluding remarks.. Unavailability of Estimates of Expenditure budget documents to the public after submission in parliament defeats public participation during budget approval stage. Need to consolidate gains by MoF in producing and publishing Citizen Budget as was done in 2011/12. Safeguard budget cuts in social sector in case of budget shortfall.
Thank You I Invite Questions and Comments