Contractionary Expansionary Fiscal Policies

Contractionary Expansionary Fiscal Policies

The government of Kenya spending has increased in leaps and bounds in the last ten years. This can be traced back to the huge and perpetually growing budget that is presented in parliament each fiscal year. From a positive standpoint, we may interpret this as a measure to further expand the largest economy in East and Central Africa. However, the actual results depict a different picture from the envisaged outcome.

In each budgeting phase, we witness a significant deficit in the budget. The deficit is bridged through domestic and external borrowing, introducing new taxes and levies where none existed both at the national and county government levels among others. Does anyone remember the whole debate around proposals to increase social security fund contributions, hospital fund, new motor vehicle registration numbers, digital driving licenses and private motor vehicle inspection? I bet you do. What is the purpose of these changes? Your guess is as good as mine.

The government’s intention to spur economic growth through increased public spending is noble but the measures taken to bridge budget deficit are counterproductive. According to Keynesian economic theories, an economy expands due an increase in the aggregate demand. The aggregate demand is constituted of consumer spending, business spending through investment, net government spending and net exports. In our case, the new taxes that are in introduced reduce one’s purchasing power. As a result, one has little or nothing to spare for investment, therefore, reducing consumer and business spending.

On the other hand, the government uses a huge share of the borrowed funds for capital investment such as infrastructure. These projects are awarded to foreign companies which represents a withdrawal from the economy. Such funds do not grow our economy but others. The situation is worsened by the fact that Kenya is a net importer.

One mind boggling question is, “Where do we go wrong on policy formulation?” The obvious answer: the type of people we elect to the national assembly. There are those who are of the view that education is not necessary for someone to lead. Well, we may differ on this but I find education to be of absolute importance on matters of leadership. How can one know the impact of a proposed bill if they have no knowledge of the subject matter? The other undebatable answer is that members of the national assembly pass bills in line with their party’s position and party leaders at the expense of objectivity.?