Under the former Constitution, the Treasury effectively wrote, made and read the Budget.
Today, the three arms of government write their own budgets, which the Treasury compiles and consolidates and Parliament “makes”.
The theory tells us that deficits are not necessarily bad. But, like beer, there must be a modicum of moderation.
Our effective deficit in this period has been Sh2.5 trillion, equivalent to the growth in our public debt.
Coming into 2017/18, the tentative numbers tell us we will raise Sh1.7 trillion in revenue but spend Sh2.6 trillion.
Amidst our pre-election din, Kenya’s 2017/18 budget seems like an interruption of more important things.
Do you have glossy campaign posters littering your neighbourhood? Do you see gas guzzlers and choppers shuttling around Nairobi and other urban centres as political deal-making define daily work?
Priorities, dear Kenyans, priorities! After constitution-making, budget-making is arguably our most important process of national governance.
This year’s budget is significant as, first, an “end of term” account for the Jubilee administration, and second, as a “transition” map from the second to the third medium-term plan under Vision 2030. It’s also the budget that marks the end of the first post-Constitution electoral cycle.
The Treasury’s charm offensive this past week —schmoozing the press, promising Kenyans no new taxes and reportedly celebrating a consumer spending boom at high-end shopping malls that is raising tax collections by Sh200 billion a year — should be seen in this transitional light.
The devil is always in the detail, so I defer to Treasury secretary Henry Rotich’s Budget Statement later today. In the meantime, what reflections can we bring to this “end-term/transition” budget moment at the end of our first post-constitution electoral cycle? A couple of points come to mind.
First, process. Under the former Constitution, the Treasury effectively wrote, made and read the Budget.
Today, the three arms of government write their own budgets, which the Treasury compiles and consolidates and Parliament “makes”. No doubt by dint of tradition rather than logic, the Treasury then re-compiles and reads the budget that Parliament made.
Oh, and then Parliament approves and appropriates the budget that Treasury just read!
One imagines this “back and forth” between the Treasury and Parliament needs urgent process re-engineering. As we speak, we will today be presented with a Budget made by Parliament and “re-compiled” by the Treasury, which is not in the public domain. Did someone say “transparency”?
Second, content. To begin, the Parliamentary Budget Office was scathing in its report to Parliament’s Budget and Appropriations Committee on the Treasury’s budget, suggesting that it lacks clarity and credibility on fiscal policy, is not truly aligned with (Vision 2030) medium-term priorities and is ineffective in addressing national development needs.
It also offered that some allocations are not wholly justified, while querying how budgetary commitments would be tracked.
Deficit budgets
Let’s cut to the chase. Can Kenyan fiscal behaviour afford deficit budgets (and budget deficits)? The theory tells us that deficits are not necessarily bad. But, like beer, there must be a modicum of moderation.
In both cases, an excess of stimulus is not recommended — a hangover follows too much beer, a (debt) overhang is the result of too much deficit.
I can resist everything except temptation, so let’s play numbers. In the past four years, we have raised Sh5 trillion in revenue and spent Sh7.5 trillion, of which 60 per cent was recurrent expenditure, and the rest for development.
Our effective deficit in this period has been Sh2.5 trillion, equivalent to the growth in our public debt.
Coming into 2017/18, the tentative numbers tell us we will raise Sh1.7 trillion in revenue (including Sh1.45 trillion in taxes, a 12 per cent increase on the current 2016/17 year).
We will spend Sh2.6 trillion.
This includes Sh621 billion, 36 per cent of revenues, on internal and external debt servicing, which is almost five times what we will spend on roads, eight times our spending on universities and 150 times our proposed maternal healthcare expenditure. This debt service could pay for the next 13 years of free primary and secondary education.
To balance the books in gross terms (that is, treating internal debt roll-overs as actual debt redemptions) requires brand new borrowing of Sh860 billion.
In net terms, (that is, net of all debt redemptions), the borrowing requirement is Sh523 billion (effectively, this is the budget deficit). This all assumes we meet our 2017 GDP growth projection of six per cent, except we recently told the IMF that we’ve quietly cut this forecast to 5.25 per cent.
Did someone say M-Akiba?
That just might be today’s highlight.
Good luck, Bwana Rotich!
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
