The government could further slash the budget for the 2025/26 financial year from Sh4.263 trillion approved by the Cabinet before it is tabled in Parliament.
The revelations emerged on Tuesday after a Cabinet meeting chaired by President William Ruto at State House, Nairobi.
“Cabinet Secretaries have been directed to work with the National Treasury to identify and implement necessary adjustments within ministries and state departments. This move aims to cap the fiscal deficit at no more than 4.5 per cent of the GDP for the financial year 2025/26, down from 5.3 per cent in 2023/24,5.1 per cent in 2023/25 and with a medium-term target of reducing the deficit to 2.7 per cent,” a Cabinet dispatch reads.
The Cabinet noted that the government’s fiscal policy for the 2025/26 financial year prioritises fiscal consolidation to reduce debt vulnerability while ensuring adequate funding for essential services.
“As a result, the initial estimates of Sh4.3 trillion will undergo substantial revisions before being tabled in Parliament,” the communiqué adds.
“These adjustments are part of broader austerity measures designed to strengthen fiscal discipline, reduce public debt vulnerabilities and enable the government to deliver essential services.”
Though,it is not clear how much will be slashed from the earlier approved 2025/26 budget estimates, Kenyans should expect a budget smaller than the earlier projected Sh4.263 trillion.
This is the second time President Ruto’s administration is revising downward the projected spending for the 2025/26 financial year even before it starts.
In February, the Cabinet approved budget estimates of Sh4.263 trillion, indicating that the government was banking on expenditure cuts, increased revenue collection and enhanced tax compliance to finance the Sh4.2 trillion budget.
Expenditure rationalisation
Tuesday’s dispatch shows that the 2025/26 budget will be achieved through expenditure rationalisation, mobilising revenue and enhanced tax compliance.
The Cabinet approved the Finance Bill 2025, which it said focuses on closing loopholes and enhancing efficiency in expenditure, including addressing gaps related to tax expenditure that have historically been exploited to siphon funds from public coffers.
According to the Cabinet dispatch, the Bill seeks to minimise tax-raising measures.
“It aims to enhance tax administration efficiency through a new legislative framework. Key provisions include streamlining tax refunds, sealing legal gaps that delay revenue collection and reducing tax disputes by amending the Income Tax Act, the Value Added Tax (VAT) Act, the Excise Duty Act and the Tax Procedures Act,” it added.
The Bill also proposes critical changes to support small businesses, allowing them to fully deduct the cost of everyday tools and equipment in the year of purchase, hence eliminating delays in accessing tax relief.
In the financial year 2025/26, retirees will benefit significantly as gratuity payments in public or private pension schemes would be fully tax-free.
Employers will be required to automatically apply for eligible tax reliefs and exemptions when calculating Pay as You Earn (PAYE) for workers.
Currently, many employers omit the reliefs, forcing staff to seek refunds from the Kenya Revenue Authority.
The cabinet also gave a nod to the Public Finance Management (Amendment) Bill,2024. The Bill mandates devolved governments to establish County Emergence Funds.
“The amendment aims to equip counties with financial readiness to respond swiftly to emergencies and protect lives, livelihoods and infrastructure,” the dispatch adds.
The Cabinet endorsed the Judges Retirement Benefits Bill,2025, which establishes a dedicated pension and retirement benefits framework for judges of superior courts, moving them away from the General Pensions Act.
The law will establish a Defined Benefit system for serving judges and a Defined Contribution system for appointees.
“The law provides enhanced retirement benefits, including monthly pensions,” reads the Cabinet communiqué.
To bolster the government's bid to attain Universal Health Coverage (UHC) and improve access to quality healthcare, the cabinet approved the construction of two Level VI teaching and referral hospitals in Bungoma and Kericho counties in partnership with the African Development Bank.
The cabinet further gave a green light to amendments to the Capital Markets Act to remove shareholder limits in regulated institutions.
This means the government seeks to do away with shareholder limits on the capital markets front while allowing the market regulator discretion to prescribe limits as it deems fit.
At the same time, the cabinet approved the Draft Pest Control Products Bill, 2024, which modernises the regulation of pest control products in Kenya.
In a move that could further strengthen ties between Kenya and Haiti, the cabinet also approved the establishment of a Consulate General in Port-au-Prince, Haiti.
The consulate will provide strategic support to Kenya’s leadership role in restoring law and order in Haiti.
