Kenya: Our Debt, Expenditure and Future Taxes

Post date: Thu, Jan 17, 2013
Category: General
By: IEA Kenya,

Reading an article by Jaindi Kisero in the Wednesday edition of the Daily Nation newspaper (Read it here), leaves one with the feeling that both the political arms of government are not entirely forthright with the public, regarding the total burden of public expenditure. The article properly argues that public expenditure has grown disproportionately as compared to revenues, but the public sector has faced severe constraints in reducing expenditure. In the review of the budget estimates presented to the legislature during the year, it seemed that we missed the fact that the total revenues generated would fall substantially short of the gross expenditure of Kshs 1.45 trillion. That alone should have signaled that expenditures were running far ahead of revenues. Instead, the focus was lightly fixed on the debt position which seemed to be manageable.

While many cynics blame the new constitution for having created a large number of commissions and offices, the explanation lies in other maximalist habits that have informed budget policy. For instance, there has been an unexamined claim that Kenya’s tax collection has been growing tremendously since the year 2003, and that the need for external resources is almost extinguished. This claim created the false view that there is a vast trove of taxes, to be used for expenditure. It was also forgotten that the overall period from 2004-2011, included years when inflation was maintained at high levels. As a result, those increases in the nominal tax take were not spectacular when corrected for inflation that accumulated over that period, meaning there was growth and increased expenditure but the 2006 shilling was weaker than its 2003 equivalent.

Secondly, the constitution created several offices, but also provided for the Salaries and Remuneration Commission (SRC), whose purpose was to review and rationalize public sector pay. Yet in the sequence of implementation, this commission was constituted after others, where the professionals serving within them negotiated salaries and allowances and thereby established certain ceilings and scales of pay that the SRC may struggle to undo. Parliament too failed to review the number of people serving in commissions, because the constitution provides for a range of 3-9 people for each commission, but in all cases, the legislature and the executive opted for the maximum number. Consider that the Indian Elections Commission, similarly established by the Constitution of that Republic, has only three commissioners managing elections in a country nearly six times larger geographically, with upwards of 700 million registered voters against less than 16 million for Kenya. This maximalist approach is not peculiar to the appointments to Kenya’s Elections Commission but reflects the unwillingness or lack of cost effectiveness in decisions of staffing and appointments.

More recently, the country has seen a policy taken to the extreme, where professionals from the private sector stake claims to vey high pay levels, ostensibly for bringing in special skills into the public sector. Among them are professionals who command wages that are higher than the pay for private sector equivalents in Kenya or comparable countries. In short, this wage premium coming from a distorted public sector wages policy is not only out of whack but is also effectively reduces the flexibility for the future governments, because it commits those resources to payment of debts procured today.

There is also a high affinity for departments and institutions of the public sector to purchase buildings and engage in construction. Since there is no published information, it is unclear that the redistribution of existing assets has been considered as an alternative to purchase of land and expensive construction. This is an area in which succeeding legislatures will have to focus attention, because there is an unproven and unsound economic argument that it is always cheaper to construct premises and residences than it is to lease them in Kenya. Apart from the risks with public procurement and escalated costs of construction, expansion of public ownership of buildings should not be taken as an article of faith but subjected to proper cost effectiveness analyses by budget oversight committees.

Noting that all expenditure that exceeds receipts represents our future taxes, it is important for Kenyans to keep the management of public resources and the ability to control costs in mind while making electoral choices. And yet, the pre-elections discourse is still predicated on and encourages the view that all public issues will be resolved through increased expenditure and by giving away free things. The necessary discussion between Kenyans is what our expectations of the public expenditures are because we should not lose sight of the fact that every shilling spent must be paid for. To ensure that it is properly spent and that waste is cut out is a duty that the outgoing parliament struggled with and which the incoming legislature must take more seriously and listen to dispassionate advice both within and outside the public sector.

While citizens generally state that most governments tax harshly and spend inefficiently, the state of Kenyan public finances suggests that we are heading towards a “spend-inefficiently-first-and-tax-harshly-later”, nation. This state of affairs is the cumulative result of lack of keenness in keepings costs down through various departments, ministries, commissions and state corporations. A solution that incorporates transparent assessments for cost effective spending is a definite electoral issue.

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