Wednesday, June 17, 2009


Finance Minister has impressive speech delivery. He kept the budget speech short, interesting and communicated with his audience within and outside the Parliament during the speech.
2009/2010 budget anticipates Government borrowing of Ksh 109 billion. Armchair economists have crowed about how the new borrowing will crowd out the private sector and raise interest rates.

I think NOT.Uhuru provided an expansionary budget and an expanded source of funds at the same time. How?

Firstly, he has provided AMMENDMENTS to the
Retirement Benefits Authority (RBA) regulations to allow schemes below Ksh 100 million in size to invest entirely in Government Bonds and bills. New money into statutory schemes such as the new Civil Service Pension scheme, Local Authorities provident schemes and National Social Security Fund (NSSF) will be channeled into Government securities and infrastructure bonds.

Secondly, he maintained the current TAX RATES. In an environment of rising inflation constant tax rates allow Governments to increase their tax revenues without raising tax rates. For instance, if the price of a widget increases from Ksh 116 to Ksh 150.Value Added Tax payable to the Government would rise from Ksh 16 to Ksh 20.69 (assuming a VAT rate of 16% and a VAT inclusive sale price of Ksh 116).
Salaries are likely to be increased to mitigate the effects of higher living expenses. If your Gross pay rises from Ksh 20,000 to Ksh 25,000 your tax payments rise. The effect is more pronounced if your gross is above Ksh 40,000 because your marginal tax rate is 30%.

Thirdly, Kenya has a low CAPACITY to spend. It is unlikely that all the money set aside for the CDF and other Development projects will get spent. Hence, our deficit may be smaller than expected.

Links: 2009 Budget speech and Finance Bill 2009.