The greatest threat to macro-economic stability in the coming months are the prevailing high consumer prices. Prices are rising across a broad spectrum of goods and services and impacting the cost of living adversely — especially for those on low income.
Of course, the cost of living crisis the citizens are experiencing will not be reflected in official statistics. Traditionally, our central bank becomes more concerned whenever there are upsurges in underlying inflation (jargon for inflationary pressures in the economy arising from factors other than increases in prices of food and fuel).
As an ordinary consumer, the monetary policy committee is no more than an ivory tower with little impact on the pressures your pocket feels.
If you want to track inflation and assess the impact of the scourge on the cost of living of the ordinary consumer living in Nairobi, just look at his last monthly shopping bill at the supermarket for the indispensable staples — bread, milk, and maize flour and then compare it with what he paid for the same items six months ago.
Track the movement of prices of paraffin, cooking gas, charcoal, matatu fare, bread, clothing and house rent and you have a clear picture of the damage inflation is doing to the pockets of the ordinary men and women in this country.
Worse, the prognosis for the medium term is that the cost of living crisis we are experiencing will get worse. The biggest risk to low and stable prices in the economy in the medium term is the war in Ukraine.
We have to brace for higher international cereals prices, particularly wheat. Prices of chapati and mandazi — especially those varieties and staples slum dwellers live on known as ‘kangumu’ and ‘KDF’ — may go through the roof.
Higher oil and gas prices will raise transport costs and stoke higher consumer prices for many products. We are also likely to see a severe depreciation of the shilling against the US dollar. A weaker shilling will raise local currency costs of our mountains of external debts.
What must we do? Why aren’t we discussing whether it is not time to remove VAT and excise duties on selected consumer products? As a society, we refrain from pointing fingers at policymakers. We are prepared to accept fatalistic explanations that suggest that our problems are caused by factors that cannot be avoided.
Bread and chapati prices have gone up because of the war in Ukraine. Transport prices are going up because oil prices in international markets have gone through the roof. The consequence of this fatalistic attitude is that we let policymakers off the hook.
Methinks that we need to completely rethink the tax policy. At independence, our founding fathers chose a private sector-led growth strategy where tax policy would be deliberately designed to support private sector productivity and innovation. Tax policy would recognise segments of the economy that work and produce.
The rain started to beat us when we started taxing everything. You tax the private sector as much as possible and give the money to the State to spend it as it chooses, even when most of that money is going to be spent on projects of no economic viability.
Today, tax policy proceeds on the assumption that by imposing higher taxes, you can collect more revenues and that when you enrich the State, you enrich the citizen.
It seems that policy is anchored on the belief that the State has the first claim to everyone’s income and that what you remain with after being taxed is just a gift out of the government’s generosity. And taxes are being introduced at a time when companies are struggling.
Indeed, corporate profits have basically flat-lined in the past 10 years.
While the State has been busy spending big monies even on unviable projects, the private sector has experienced a slowdown as reflected in the low uptake of commercial bank credit and spikes in the number of retrenchments and frequent profit warnings by listed companies.
The Treasury should put out a public statement explaining to us how it is going to redress the cost of living crisis.