I welcome Prime Minister's argument of the possibility of raising taxes on the rich in order to bridge the budget deficit that will be created by the recent intervention measures announced to cushion Kenyans from the high cost of living. However I welcome this with a lot of reservations and misgivings. Its appears to me like a populist argument and myopic for that matter and hold no water. This is because of a number of reasons.The percentage of the rich in Kenya is very small and no matter how much you tax them you do not need a space scientist to tell you that the impacts to our economy is not only negligible but minute.Its also apparent that the rich class in Kenya is largely constituted by the political elite who are expected to pass the necessary statutes so that this can be implemented.This is like expecting a judge to give a fair trial for his/her own case.The other thing is how do you identify a rich person and what variables are you going to use?
The Premier should instead have focused on long term measures to lower the cost of living and also measures that will ensure that the government does not lose a large chunk of its revenue.This should have been left to the technocrats of the responsible ministries to come up with the best solutions.Mr Odinga may have meant well for this country but he did not do his home work well.His first question should have been:Where did the rain start beating us?What measures should be taken to cushion Kenyans and at the same measures that does not affect the government source of revenue.
Further no details of how such a measure would be enforced including which wealthy people would be targeted and what percentage they would have to pay were not disclosed, this can only mean one thing,its just a thought and not something the government intend to implement.By saying that the Treasury had been tasked with that duty and was expected to report back to the executive with proposals of how it could be implemented.Mr Odinga is just admitting that it might not be possible.
One also should be cognizant of the fact that the news will not be received well by the rich, many of whom complain that they are already heavily taxed. A similar proposal has been floated in the United States to tax those who make above $250,000 per year,that has been met with a lot of resistant with those targeted arguing that their income fluctuates and they should therefore not be subjected to tax raises.The government's raft of measures it has announced including waiving taxes and duties on fuel products and imported grains, are expected to result in a shortfall in revenue targets and thus its should look for long terms and viable measures that will help them recover revenue targets.
The government should think of some other alternatives although with a lot of keenness and sobriety.Such alternatives, include borrowing from the local market.However this is not an attractive road to the Treasury and the Central Bank of Kenya, because it would mean pressuring the already volatile interest rates and inflationary pressures. The government also has a choice to borrow from development partners, a move that would further raise Kenya's debts, which is currently at over Sh1.3 trillion.Rationalizing the budgets of ministries with a view of reducing wastage and corruption and at the same time ensure that they are able to meet their targets and financial obligations.
Although this will be a tough call for the Treasury as the government should not lose sight of its future growth targets and as such its should not defer its development projects.It should strive to safeguard the country capacity for future growth and even the capacity to allow adjustment process.It should be noted however that the measures announced by the government are meant to contain the rising inflation and reduce the burden on Kenyans, there are high chances of a lagged effect on the economy. Financial analyst have started to cast doubt on the GDP growth rate projections for 2011 they have proposed to about 4.5 percent.The optimism is still there that with time, the economy, which has been very resilient before, will bounce back.
Its important that the measure taken are long term and are carefully thought.
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