Experts warn new budget will deepen poverty, increase taxes

Experts warn Kenya’s forthcoming 2025/26 budget risks plunging an additional two million citizens into poverty through proposed tax hikes and subsidy cuts, compounding existing pressures from a ="https://www.standardmedia.co.ke/business/business/article/2001509882/new-kra-boss-muriithi-wants-outdated-annual-finance-bill-scrapped">16.5 per cent inflation rate<.

The Tax Justice Network estimates the Finance Bill’s 18 per cent VAT expansion on basic goods could erase eight per cent of purchasing power for low-income households.

Economists and the Parliamentary Budget Office (PBO) now say the budget proposals being taken through parliament will deepen the divide with rising taxes, stagnant wages, and neglect of critical sectors like agriculture. PBO warns that it will leave vulnerable families with even less hope for a better future.

The PBO statement comes a year after nationwide protests against the unpopular ="https://www.standardmedia.co.ke/business/business/article/2001508587/impact-of-finance-bill-withdrawal-hits-state-revenues">Finance Bill 2024 in June last year,< which planned to raise taxes leading to a higher cost of living. Amnesty International reported that the harsh police response to the protests resulted in the deaths of six people, with 72 others abducted or still missing.

The bill heavily supported by President William Ruto included a mandatory three per percent housing levy on salaried Kenyans and increased contributions to the defunct National Hospital Insurance Fund and the National Social Security Fund.

“We want to see who will go against the Finance bill,” Ruto warned MPs, who disregarded the PBO report, to heed to Ruto’s demands.

PBO, an institution created to advise parliament on budgeting, is urgently calling for change, highlighting the harsh realities that ordinary Kenyans face. “If things continue as they are,” the PBO warns, “many families will see their situation worsen, with even less access to food, credit, and jobs.”

PBO explains that inflation, coupled with shrinking pay due to taxes, has ensured a consecutive negative growth in real wages per employee, signifying a reduction in purchasing power that the new budget has failed to address.

The PBO adds that despite heavy borrowing, avenues for securing loans for Kenya have diminished, denying the country development funds.

“This is compounded by the fact that between 2020 and 2023, the combined real wages for both the private and public sectors decreased by 10.7 per cent,” the PBO said in its report dated March.

 The report states that total revenue for 2025/26 financial year is expected to be Sh3.385 trillion (17.6 per cent of GDP), up from Sh3.06 billion (16.9 per cent of GDP) projected for the current financial year, with the increase driven by tax and revenue collections, hence putting more burden on Kenyans. 

Experts say National Treasury Cabinet Secretary John Mbadi’s proposed Sh4.34 trillion budget will see Sh3.22 trillion going to recurrent expenditure and Sh676.7 billion to development projects.

Patrick Muinde, a development economist, said that the biggest challenge Kenya wfacesis wastage and corruption and that Kenyans should brace for hard times ahead.

“For instance the President is campaigning and using public resources to mobilise people, which has no value to the Kenyan economy,” Muinde said, adding, “If those funds were invested in education, or health it would be much better.” 

Economist Dennis Kabaara said life is becoming touger for Kenyans because of the ‘indisciplined government’ which has failed to consult on policies.

“The budget has failed to correct previous mistakes and this will hurt everyone,” Kabaara said. 

The PBO warns that the 2025/26 budget perpetuates past policy failures, worsening the cost of living, taxes, and public services. Instead of relief, the budget will increase taxation and debt, further burdening struggling households and businesses.

“The resource requirements for various initiatives under the health sector reforms are not well defined. These include the Social Health Insurance Fund, the Primary Healthcare Fund, and the Chronic, Critical and Emergency Illness Fund. Failure to determine this at the planning stage implies the need for additional resources midway, which may further impact the fiscal deficit,” the PBO report, titled ‘‘Unpacking of the policy statement for financial year 2025/2026 and the medium plan’’, explains.

The PBO warns that the new budget’s lack of clarity on funding key healthcare reforms threatens healthcare access for millions of Kenyans. Experts caution that without a clear budgeting framework, the government risks running out of funds mid-year, leading to shortages of essential medicines and equipment, forcing patients to bear higher out-of-pocket costs.

The report questions Social Health Authority’s (SHA) capacity and highlights how delayed payments to healthcare providers have disrupted services, especially in rural areas, with many facilities forced to reduce or close, leaving vulnerable patients without life-saving care.

It warns that without proper resource allocation, the government may need to seek additional funds mid-year, worsening the fiscal deficit.

Delays in claim settlements by SHA, particularly at primary healthcare facilities, strain service delivery and limit access to essential medical care.

The Budget Policy Statement does not address the potential impact of donor funding cuts, including from USAID, which could leave health initiatives like malaria, HIV, TB, and immunisation efforts facing a Sh20 billion shortfall. Without measures to bridge this gap, millions of Kenyans risk losing access to life-saving treatments.

PBO stresses that reductions in development aid pose a major threat to essential health programmes. Without adequate funding, these programmes could face severe disruptions, leading to medicine shortages, reduced access, and increased disease outbreaks. If the government does not intervene, vulnerable communities will suffer, worsening Kenya’s public health crisis. 

Treasury CS John Mbadi explains that the government projects an optimistic 5.3 per cent economic growth in 2025, up from 4.6 per cent in 2024, driven by sectors such as agriculture, ICT, tourism, and industry but experts cast doubt on these projections.

“Given the slow implementation of key Bottom-Up Economic Transformation Agenda priorities, limited fiscal space for public investments, a slowdown in private sector activities, and the vulnerability of the agriculture sector, this growth projection may not be tenable,” the report states, adding, “Consequently, PBO projects a modest economic growth rate of 4.8 per cent for this year.”