Mbadi's Sh4.8tr budget raises taxes fears amid economic stress

Treasury CS John Mbadi will this afternoon step up to deliver a budget statement amid a storm of economic shocks threatening to cripple the economy but also pushback by Kenyans. 

He will try to reassure Kenyans at a time when the economy is battered by severe domestic and global shocks. These range from record high fuel prices and concerns about Ebola to an economy that cannot be taxed more even as Treasury tries to finance an expanded budget.

The war in the Middle East has driven local pump prices to a historical high and pushed May's inflation to a four-year high of 6.7 per cent due to high cost of transport nad essential products. Mbadi will deliver his statement three days before the anxiously awaited announcement by Energy and Petroleum Regulatory Authority (Epra) for prices for the June-July cycle.

He will also try to justify proposed Finance Bill 2026, which according to some quarters, threatens to push up the cost of essential items. The Bill seeks to raise more tax revenues to finance the budget but also reform the tax administration, with some of the proposed measures expected to raise the cost of goods. Mbadi will also try to justify why the government has resisted to cut spending despite calls but also in the face of consistent revenue shortfalls and crippling debt-servicing costs.

Other than the budgetary pressures, there is also the lingering shadow of Ebola and the devastating impact that it might have on public health as well as the economy.

Mbadi is also alive to the pushback by Kenyans, who are no longer taking everything lying down. This is seen more recently when a wave of anti-government sentiment forced the Ministry of Energy to direct Kenya Power to withdraw its proposed electricity hike. There has been growing resistance to the US Ebola quarantine centre in Laikipia, which has been rejected through protests in Nanyuki but also among other Kenyans including a section of medics. 

Mbadi will also deliver his budget statement a week before the June 25 anniversary of the 2024 Gen Z demonstrations, which forced the government to withdraw that year’s Finance Bill but had also turned deadly after police unleashed unreasonable force to quell protestors.

The different domestic, regional and global pressures are creating an economic mix that is unpalatable for Mbadi and his cabinet colleagues but also the Kenyan economy.

In his budget statement today, Mbadi will try to get further buy-in from MPs and Kenyans about his spending plans as well as proposed tax measures in the Finance Bill  2026, which are expected to be debated in Parliament in the coming days.

Over the 2026/27 financial year, Kenya plans to spend Sh4.82 trillion. This will be financed through ordinary and total revenue that has been projected at Sh3.63 trillion. The deficit of Sh1.19 trillion is expected to be financed largely through local borrowing at Sh995.7 billion and foreign loans of Sh116.2 billion.

The spending has been criticised as too high which is also not translating to better lives for Kenyans, the revenues too ambitious with KRA expected to squeeze Kenyans further as it tries to meet the high target. Analysts also warn that high local borrowing to plug the budget deficit also risks pushing businesses and households out of the loan market, with commercial lenders expected to lean more towards lending to the government, which is seen as more secure than lending to Kenyans.

Former Deputy President Rigathi Gachagua, last week tore down the Finance Bill and the Budget estimates, noting they have little for Kenyans. He presented what he termed as an alternative to Ruto’s Sh4.8 trillion spending plan, noting that aggressive cutting of unnecessary spending and doing away with all borrowing, the country’s budget could be trimmed to Sh3.7 trillion. 

With an expected total revenue of about Sh3.6 trillion, this would mean a more or less balanced budget, where the revenues match the expenditure.

“What is in this Budget and Finance Bill for Wanjiku? Both (the budget and finance bill 2026) are a twin evil; The Finance Bill 2026 is Taxing Kenyans into Poverty. It is a killer and a threat to the common Mwananchi; it will break households while stifling the freedom  of Kenyans and violating the very soul of our nation, the Constitution of Kenya 2010. It is a budget for 50-Regime-Billionaires and One Trillionaire out of our sweat and blood,”

“The two documents are not a rescue plan for the common mwananchi but an increased tax burden on workers, consumers, farmers, businesses, manufacturers, SMEs, bodaboda operators, mama mbogas and the youth who are the very soul of our Nation.”

“A National Budget must be a plan for prosperity, a blueprint for opportunity and a statement that gives priority to the people and not cake for a few elites.”

Gachagua also noted that Treasury had over the years  failed to give realistic revenue projections, setting targets too high for KRA such that it has consistently missed revenue collection targets.

“Despite this persistent underperformance, the government is projecting tax revenues of Sh2.86 trillion in FY 2026/27. We are well advised that a realistic projection on revenue collections will be Sh 2.29 trillion,” said the former DP, warning that the missed targets will start translating to higher translating.

“Kenyans should expect a worse tax regime midway and lots of failed promises as usual.”

Gachagua further noted that Kenyans have in recent years been subjected to higher taxes but also new ones that have eroded their spending power. 

“As the DCP Party, we note with great concern that the expenditure projections of this regime continue to grow at a pace completely out of touch with Wanjiku,” said Gachagua.

“In addition to a shrinking payslip, Kenyan households are no longer able to save or afford essential goods for their families. Above all, their purchasing power has been sunk. This is while the wages remain stagnant and taxes keep soaring. The result is not prosperity. The result is economic fatigue, reduced consumer spending, shrinking margins for businesses, and rising public anger. Kenyans remain under deep unspoken stress. In the Budget statement, we have made a closer examination of sectoral allocations revealing a worrying shift in Kenya's national priorities over the past three years.”

Yesterday, the United Opposition released its own budget that trimmed the National Treasury’s Sh4.8 trillion estimates by about Sh500 billion.

In the “alternative people’s budget proposals”, the Opposition, spearheaded by Wiper Patriotic Front Party leader Kalonzo Musyoka, slashed the allocations to some agencies such as National Intelligence Service and reallocated significantly higher amounts to sectors such as education and health.

“The National Treasury on April 30, 2026 released the Budget Summary for the 2026-27 financial year. The documents are there for every Kenyan to read,” said Kalonzo at a press briefing in Nairobi.

“And what those documents reveal—what the Treasury’s own numbers show—is a government that has chosen to burden its people rather than liberate them.”

The United Opposition said it was presenting the framework of a better Kenya…”A Kenya that is fiscally disciplined. A Kenya that invests in its people.”

The Auditor General, in submissions to the National Assembly’s Finance and Planning Committee, also noted that the high revenue projections over the years but the collections have always fallen short of target. 

“The projected increase (in tax revenues) is attributed to the expected reforms in tax policy and revenue administration aimed at broadening the tax base and enhancing compliance, which is contained in the Finance Bill, 2026,” said the Auditor General. 

“However, over the years, ordinary revenue collections has been below the targets or budget. This has been attributed to unrealistic and ineffective forecasts of revenue and cash flow trends by The National Treasury. Although the variations are below 10 per cent, the trend in revenue shortfall raises concerns on the accuracy of revenue projections in the national budget and the adequacy of measures to ensure revenue targets are met

Diana Gichengo, executive director at the Institute of Social Accountability (TISA) at a recent briefing noted the contradiction in having a big budget but the state continued to fail to allocate adequate resources to critical sectors.

“We are witnessing a terrifying contradiction. A government that tables an astronomical budget for the 2026/7 financial year of Sh4. trillion even as basic services such as healthcare and public education rapidly decline,” she said. 

The government’s reluctance to tame its spending, persistent revenue shortfalls and the resulting widening budget deficit are among the factors that are seen to also get in the way of Treasury’s bid to reduce reliance on debt-funded mega-projects.

According to a PwC pre-budget review, while the government is repositioning itself from being a primary financier to investment facilitator, relying on Public-Private Partnerships (PPPs), the National Infrastructure Fund (NIF), and the Sovereign Wealth Fund (SWF), weak revenue performance and persistent implementation gaps undermine this move. 

"Despite improved macroeconomic indicators, revenue collections continue to fall short of targets while debt-servicing obligations are consuming a large share of government resources," said Alex Nyaga, PwC Partner for Public Sector and International Development.

“The shift reflects both necessity and policy evolution: public resources alone are no longer sufficient to meet Kenya’s growing development needs. While contingent liabilities and guarantees are expected to rise under the new model—and will require careful measurement, transparency and oversight—the move toward risk-sharing structures has the potential, if well managed, to improve the sustainability of public financing relative to traditional debt-funded approaches.”

“The emerging model seeks to reposition the State as a catalyst rather than a primary financier, to crowd in long-term private capital. This is to be operationalised through a combination of blended finance structures, a strengthened project pipeline, and expanded use of PPPs across sectors such as transport, energy, housing and water.”

The government has recently established the National Infrastructure Fund (NIF) that will be used to attract private sector funding for infrastructure building. Money that the government got from the part privatisation of the Kenya Pipeline Company and the expected offloading of some of its stake in Safaricom are expected to be used as seed capital for the Fund.

The government expects to attract more than Sh5 trillion in private sector funds into the NIF over the next decade that will then be used to build roads, energy generating plants, railways, mega dams and other infrastructure.