An Evaluation of Economic Strategies in Budget Deficit Reduction in Kenya

Abstract

Budget deficits have attracted a great deal of attention over the past few decades. This is so because financial experts have blamed it on all assortments of ills that beset developing countries. Some of these ills include: high inflation rates, over indebtedness, loss of a country’s sovereignty, crowding out of the private sector among others. In spite of its various attempt to widen the tax base and the numerous austerity measures to cut down on its recurrent expenditures, the Kenyan government like most of the other developing countries has over the years been a perpetual casualty of budget deficit. The purpose of this study was therefore to evaluate the economic strategies measures that the Kenyan government may put in place in order to reduce budget deficit.

Specifically the research addressed how; tax policy, Inflation, technological innovation and government expenditure affects reduction of budget deficit in Kenya. The research will be of great significance to: the Kenyan Government, future scholars as well as the government of other countries with deficit budget. The research design adopted for the study was descriptive research design; the population was the 33 tax seniors in the 5 leading audit firms in the country namely PKF Kenya, Deloitte & Touché, KPMG, Ernst & Young Kenya and Price Water House & Coopers Kenya. Census method of sampling was adopted for selecting elements under study. Moreover both primary and secondary methods of data collection were used to collect data and the results thereon analyzed using Minitab version 17 and presented in form of: tables, charts, graphs and inferential statistics.

The response rate from the questionnaires issued was 76% and most of the respondents asserted that the tax policy and the government expenditure were the main causes of the persistent budget deficits in Kenya and a number of recommendations were put forth on how best to address the same, among the recommended measures to deal with the tax policy included; widening the tax base to capture the juakali sector, revamping of the turnover tax system, more stringent measures to ensure compliance and a total overhaul of the VAT system which still has a very big growth potential. On the issue of government expenditure it was recommended that the numerous austerity measures that have over the years been proposed by the various Finance Bills be strictly adhered to so us to cut down on the avoidable public expenditures and equally the government to utilize concessional loans that have zero interest rates so as to cut down on interest repayments on its loans. Moreover the researcher found out that inflation was heavily contributing to the budget deficit in Kenya hence recommendable that the government initiates various fiscal and monetary policies to contain inflation to manageable levels. The researcher further recommended that investment in information technology be expedited as through it, KRA will be in a position to bring more persons in the tax net and consequently widen the tax base and equally fasten the tax collection process and facilitate various audit by the authority.

Key Words: Economic strategies, Budget deficit in Kenya