Finance minister Njeru Githae says rising pressure on wages had forced the government to freeze the setting up of any new public sector organisations with personnel and wage implications. FILE
What you need to know:
The Treasury is preparing to spend Sh314 billion to pay wages in the next financial year, according to the Budget outlook paper released ahead of time because of next year’s General Election.
The government plans to spend Sh400.6 billion on development compared to Sh447 billion in the current financial year, a decline of 10.4 per cent.
Finance minister Njeru Githae says rising pressure on wages had forced the government to freeze the setting up of any new public sector organisations with personnel and wage implications.
The public sector wage bill will rise by a massive Sh48.4 billion in the next financial year as the government moves to meet its part of the pay deals it signed with employees this year.
The Treasury is preparing to spend Sh314 billion to pay wages in the next financial year, according to the Budget outlook paper released ahead of time because of next year’s General Election.
The estimates mean that public service wages will consume about one quarter of the Sh1.26 trillion Budget, squeezing out development expenditure and ultimately slowing down the journey towards Vision 2030.
At Sh1.26 trillion, the national budget will remain nearly at this year’s level, signalling that the Treasury has frozen its ambitious public expenditure expansion programme that has seen the budget nearly triple from the Sh306 billion in 2003 to this year’s Sh1.263 trillion.
Keeping total public expenditure flat at Sh1.26 trillion while increasing the allocation to wages means that development expenditure will drop by nearly the same amount in the next financial year.
The government plans to spend Sh400.6 billion on development compared to Sh447 billion in the current financial year, a decline of 10.4 per cent. That means the development budget will account for 32 per cent of total spending, down from 35 per cent in the 2012-13 Budget.
Finance minister Njeru Githae says rising pressure on wages had forced the government to freeze the setting up of any new public sector organisations with personnel and wage implications.
“The government will consider making a decision to put on hold approval of any policy and proposed legislation, which establishes a new public sector agency with personnel and wage implications,” Mr Githae says in proposals contained in the Budget Review and Outlook Paper (BROP).
The paper forms a critical part of the coming financial year’s Budget as well as the three-year Medium Term Expenditure Framework (MTEF) and has been prepared early because of the March General Election.
Establishment of any new public sector agency must await comprehensive restructuring of the government in line with the new Constitution, Mr Githae said.
It remains to be seen what impact the minister’s proposal will have on the establishment of agencies or commissions provided for under the Constitution.
At Sh314 billion, the national wage bill will consume more money than the Sh200 billion that has been reserved for county governments.
Mr Githae said the Treasury is using the next budget circle to maintain fiscal stability in the context of a steep rise in recurrent expenditure, a slowdown in tax revenue growth and persistent uncertainty on the global economic front.
“Under these (challenging macroeconomic) circumstances, we remain steadfast in maintaining macroeconomic stability, even in the face of expenditure pressures associated with implementation of the Constitution and salary demands,” Mr Githae says in the document.
The Sh314 billion public wage bill means that salaries and benefits spending will rise to 7.2 per cent of the nominal gross domestic product (GDP) up from this year’s 6.9 per cent.
The Treasury’s target has been to keep the wage bill at no more than seven per cent of the GDP.
The steep rise in the public sector wage bill means that the government must effect bold tax reforms, including a possible reversal of some policies, to keep the country on a stable fiscal path.
The Treasury had earlier indicated that it expected the wage bill to rise by Sh30 billion but a recent wave of strikes by government employees forced the government to give in to the workers’ demands, raising the amount to Sh48.4 billion.
Some analysts said the government should have anticipated that meeting the huge salary demands would leave it with a massive budget task given the slow growth in revenues.
“We warned about the fact that even in this financial year, the total revenues proposed to be collected would not be enough to meet the recurrent Budget,” said Kwameh Owino, CEO of the Institute of Economic Affairs. “What we are seeing is an increase in the wage bill that the government should not have entertained.”
Ultimately, he said, the huge wage bill pressure will force the government to roll over old domestic debt this year rather than repay it.
Mr Githae has signalled that the withholding VAT regime in place till June 2011 would be re-introduced while the ongoing audit of large taxpayers would continue as part of the effort to collect more taxes.
In the first quarter of the 2012-13 fiscal year, VAT collections were below target by Sh13 billion, an outcome that the taxman has blamed on the change in the withholding tax regime.
