Mbadi, once a budget critic, now faces litmus test ahead of Finance Bill 2025

More than ever before Kenyans are alert to the process and at every opportunity are critical of all perceived or real attempts by the government to put too much tax burden on its citizens or abuse the process through budgeted corruption.

No country can tax itself out of debt crisis 

When President William Ruto assumed power in September 2022, he took over a struggling economy, beset by post covid-19 socio-economic complications, high food and fuel prices, a nonchalant manufacturing sector and an alarming debt burden. 

His perplexing budget policy response, however, added fuel to the fire rather than cool it down. 

President Ruto immediately cancelled both fuel and maize subsidies, fees for government services went up drastically even as new fees for some hitherto uncharged services came into being. Tax on fuel doubled as the government introduced new income tax bands to tax the high earners, tax on a number of goods and services went up.

He neutered the National Health Insurance Fund (NHIF) and replaced it with a more expensive, yet poorly functioning Social Health Insurance Fund (SHIF).

To add salt to injury, the government introduced the heavily disputed and vilified levy to fund Ruto’s affordable housing pet project.

In defiance of the public mood, he defended the higher taxes as a necessity imposed by high debt repayment costs. 

Protests and withdrawal of Finance Bill 2024

During the 2023 budget making process, the Kenya Kwanza administration had unknowingly set the stage for rebellion and defiance with the 2023/2024 budget. The political opposition tried to voice their opposition to the increased taxes but were swept aside by the domineering government allied majority MPs in parliament. 

The opposition even tried the route of public protests against the perceived unfair taxes but the brutal force used against them by the police and threats from the government on opposition leaders saw the demonstrations fizzle out even as the public mood remained grumpy and dissatisfied. 

Come 2024, the government, yet again introduced an unsavoury Finance Bill 2024, sparking uproar and rebellion from citizens.

On 26th June 2024, President Ruto, in a historic move never witnessed before, withdrew the Finance Bill 2024 which had already been passed by the MPS and was awaiting his signature before becoming law. 

This was in response to deadly youth-led protests that had claimed the lives of tens of youths and sparked similar protests in over 40 counties across the country. The protests culminated in a storm into the Kenyan parliament by protesters on June 25. 

Ruto said he withdrew the Finance Bill to allow for dialogue and a collective approach on how to finance the national annual budget.

Mbadi: from a budget critic to its mover

In October 2023, John Mbadi, then an opposition back bencher in parliament minced no words on the 2023 Finance Act passed by the Ruto government. He described it as a budget to “overtax Kenyans!” Mbadi was convinced that this was in direct contravention to the government’s desire to increase revenue. 

He went on, “We agree that the debt level is unmanageable, but the mistake the government is making is to imagine it will collect more from Kenyans by increasing taxes. The moment you start attacking people's salaries, they stop spending." Further, he said, "to address this (stabilize the economy) the government should stimulate the economy and you cannot do this when you are shrinking the domestic demand," he added.

Following the deadly Gen-Z protests in June 2024, President Ruto dismissed the Cabinet to pave the way for the formation of a “broad-based Government”.

The President, on 24th July 2024 named nominated MP and ODM chairman John Mbadi as Cabinet Secretary for Treasury. As fate would serve it, John Mbadi, one of the government’s harshest critic had been put in-charge of the office whose policies he maligned at every opportunity.

Mbadi’s litmus test ahead of Finance Bill 2025 

June 2025 will be the first time that CS John Mbadi will present his first budget and observers are keen to see if he will survive the pressure and delicate balancing that the Treasury boss now needs to present a national budget that the public will buy into. 

Since early this year, CS Mbadi has been at pains to assure Kenyans that the government will not introduce new tax increases in the Finance Bill 2025 to fund the national budget. 

In February 2025, while addressing a Bunge La Mwananchi forum at Jevanjee Gardens in Nairobi, Mbadi noted that the government is exploring alternative strategies to raise revenue including widening the tax base and prioritizing fiscal discipline. 

While at Jeevanjee Gardens, Mbadi was keen to assure the public that the Treasury would put in place a mix of measures including tax reforms and an expanded tax base to grow tax revenues, as opposed to the past when it depended on hiking taxes for the existing pool of taxpayers to increase collections.

A Budget Policy Statement with no room 

In looking at the Budget Policy Statement (BPS) 2025, the National Treasury, has set the target for the Kenya Revenue Authority (KRA) to collect Ksh.3.018 trillion over the 2025-26 financial year, which is 14.7 per cent higher than the Sh2.631 trillion that the taxman was expected to collect over the current financial year. 

Through the BPS 2025, The Government will entrench the adopted Zero-Based Budgeting approach in finalizing the FY 2025/26 and future budgets to re-orient the budgeting and expenditure framework. 

However, critics of the zero based budgeting have poured cold water on these aspersions. Speaking at the Citizen TV studios on Tuesday, Uriri Member of Parliament Mark Nyamita held that Kenya cannot afford to adopt a Zero-Based Budgeting (ZBB) process due to its crippling debt burden term debt. 

Kenya might not succeed in using Zero-based budgeting, despite potential benefits, because it also has several disadvantages. These include increased time and resource demands, it has a potential for short-term focus, and inevitable resistance from bosses who may fear budget cuts. 

Additionally, the complexity and potential for a culture shift could be an issue to grapple with.

The FY 2025/26 proposed budget

The BPS gives the total budget for FY 2025/26 projected to be at Ksh.4,336.1 trillion, later reduced to Ksh.4.2 trillion which includes the allocations to the three Arms of Government including sharable revenues to the County Governments. 

Revenue Projections according to the Treasury in the FY 2025/26 total revenue including Appropriation-in-Aid (A-i-A) is anticipated to be at Ksh.3,385.8 billion (17.6 percent of GDP) up from the Ksh.3,065.2 billion (17.6 percent of GDP) in FY 2024/25. 

This of itself opens up a projected fiscal deficit of 4.3% of GDP in the FY 2025/26 or 814 Billion. This means that the government's total spending will exceed its total revenue by Ksh.814 billion and with little space to move among either external or local borrowers, the temptation to raise taxes will be an option on the table. 

The government has stated that its approved debt strategy shall include a 35% from net external borrowing and 65% from net domestic borrowing. The targeted domestic market is already stifled from government over-reach and this might further compound financing to the private sector which already is reeling from cash crunch. 

With recurrent expenditure being projected at Sh1.096 trillion, while capital expenditure is expected to be Sh725.6314 trillion, it not the best of scenarios as more funding will benefit consumption than investment areas. Despite all these obstacles, the BPS estimates Kenya’s economic growth to rise to 5.3 percent in 2025 up from to 4.6 percent in 2024 and this is expected to hold out over the medium term.

Confidence in face of adversity

In the BPS, the government says that despite the disruptions to global supply chains and finance that has led to tightening and increased cost of external commercial financing, the Government will continue monitoring the macro environment conditions before accessing the international capital market. 

The Government will also explore other sources of financing including green and climate change financing options, if the macroeconomic conditions improve. In addition, the Government may explore new markets through issuing Sukuku, Panda, Samurai and diaspora bond as part of instruments diversification and deficit financing options. 

All these, however, depend greatly on the part of the Kenya’s economy looking up to give confidence to investors who would take up these papers. 

However, a good number of observers are of the opinion that Kenyans should brace themselves for higher taxes in the Financial Year 2025/26 because the government is seeking to increase its revenue collection target, to finance the ever bloated budget, without first strengthening tax administration for enhanced compliance through expansion of the tax base, minimizing tax expenditures, leveraging on technology to revolutionize tax processes, sealing revenue loopholes and enhancing the efficiency of tax system; and focus on non-tax revenues that Ministries, Departments and Agencies can raise through the services they offer to the public.

Unrealistic targets for KRA

To compound matters in 2024, the National Assembly’s select committee on Budget and Appropriations noted that Treasury has been unrealistic in its revenue collection targets given to KRA. 

“The committee observed that the National Treasury continues to overestimate revenue, resulting in recurring deficits and necessitating increased borrowing to cover shortfalls,” the Committee said. 

This resulted in two revisions downward for the target set for the KRA in revenue collection, a situation that is not tenable in the medium to long term planning.

Treasury’s focus going forward

The big question is… how Kenya can renew its fiscal social contract with its people and at the same time expand its democracy to allow greater public involvement in the tax policy decision-making. 

Kenyans used to silently agree on most taxation laws in the past… those times are over. The Kenya Kwanza Administration attempts to bring the youth into dialogue on the way forward in 2024 and until now have failed so far on account of lost trust. 

However, there still exists an opportunity to retrace the path back to Kenya’s prime social contract which brings us together as a country, our constitution. 

Kenya’s constitution is the basis that checks government excesses in tandem with the reality of its citizens needs through the novel call to public participation.

Public participation checklist 

Of concern is that a study carried out in 2023 found that public participation in Kenya is more of a legal checklist requirement rather than a noble exercise that guarantees the wider public inclusion. 

Currently there is need for a public participation law which sets out exactly what is expected from it and the process of going about it, let us get rid of the grey areas that are presently exploited by the government to impose its will, policies and laws on the citizenry. Public participation must be done in an atmosphere of goodwill and prudence on the part of government, while vigilant citizens monitor it. 

Kirinyaga County Woman Rep., Njeri Maina, aptly captured the prevailing mood in the country when she said, “the government is borrowing, but taxpayers are not seeing a return on investment. Public participation appears to be a Public Relations agenda, and I hope Parliament listens to Kenyans before voting on this year’s Finance Bill.”