Ideas & Debate

Why the budget needs big picture perspective

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National Treasury building. FILE PHOTO | NMG

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Summary

  • After passing the Building Bridges Initiative (BBI) bill in record-breaking numbers previously unavailable for the gender debate, the National Assembly must now wade through the National Treasury’s 2021/22 budget (spending) and finance bill.
  • It is fair to observe that our current gaggle of MPs have not crowned themselves in glory on matters budget, spending, debt, or the fiscus in general.

After passing the Building Bridges Initiative (BBI) bill in record-breaking numbers previously unavailable for the gender debate, the National Assembly must now wade through the National Treasury’s 2021/22 budget (spending) and finance bill (revenue) proposals.

It is fair to observe that our current gaggle of MPs have not crowned themselves in glory on matters budget, spending, debt, or the fiscus in general.

The top line numbers in the Treasury’s April 30 press release were terribly intriguing. Our 2021/22 budget will total a humongous sum of Sh3.632 trillion, of which Sh1.879 trillion is grabbed and gobbled up by the National Executive.

Parliament (Sh37 billion) and the Judiciary (Sh17 billion) will use up roughly the same as Safaricom’s latest Sh55 billion dividend. What about the other Sh1.699 trillion?

We’ll come back to that. Here’s some more noteworthy data from the presser. Out of that national executive total, Sh26.6 billion goes to post-Covid-19 economic stimulus (when will we ever admit that there is no post-Covid any time soon?) while Sh135.3 billion is allocated to the “Big Four”.

In a rather unfortunate sense, this sounds like eight percent for priorities, and 92 percent for “business as usual”.

This, of course, is a pre-BBI budget. The referendum hasn’t been factored in. Reported estimates on the added cost of a 35 percent allocation to counties plus 70 new constituencies are running at Sh350-400 billion.

In other words, a massive Sh4 trillion budget without expenditure restraint or restructuring. But that’s in the future, the “suicide rugby pass” that could be thrown at Kenya’s next administration.

Back to 2021/22. Our last known numbers projected Sh2.08 trillion in revenues, of which Sh1.667 trillion was the expected tax take. In the old days, our Finance minister would rationalise and then quantify the impact of each and every proposed tax measure. Not today, despite a constitution that demands fiscal transparency.

In simples, our tax collections would run the national executive for only ten months and a bit next year, assuming we also closed down our counties and defaulted on our debt.

Which brings us back to that “other” Sh1.699 trillion. Take out Sh370 billion for the equitable county share (ignoring Sh30-35 billion as a conditional funding “contra” item). That leaves us with Sh1.329 trillion, actually Sh1.327 trillion in the actual printed estimates. Take out a record Sh158 billion for pensions and other constitutional costs.

We now have Sh1.169 trillion for debt service; Sh560 billion in interest costs and Sh609 billion in debt redemption, before rollovers and refinancing.

If you think that’s frightening, debt service in 2022/23 is projected at Sh1.359 trillion, before growing to Sh1.686 trillion in 2023/24. To restate, these are pre-BBI budget projections. The 2023/24 numbers look particularly interesting - external debt service, which needs forex, is projected at over Sh700 billion.

That’s the big picture before Parliament. These are the same elected people who recently limited the fiscal deficit (including grants) for 2021/22 to Sh930 billion or 7.5 percent of GDP, whichever is lower and pronounced that “any increase…beyond…approved…will not be approved”.

Hey, good people, you’re looking at a technical fiscal deficit of Sh952 billion. “Mta-do nini” (what will you do about it}?

Let’s paint the picture for Parliament a little more. Tax equals Sh1.667 trillion. Revenue (including taxes and grants) equals Sh2.08 trillion. National Government equals Sh1.879 trillion. Debt Service equals Sh1.169 trillion. Constitutionally mandated costs, or consolidated fund services (including debt service), which are a first call on the public purse, equal Sh1.327 trillion. Counties need at least Sh370 billion.

Our effective new borrowing and re-financing need looks something close to the actual tax take. After constitutional costs, we must borrow to actually run the daily affairs of national and county government.

Including borrowing for our eight percent priority allocations for Covid-19 and the “Big Four” agenda. Including our Sh500 billion-plus national executive wage bill, and Sh180-200 billion county payroll. Including the Sh660 billion we will spend on development projects financed by Sh662 billion in net domestic borrowing that crowds out private sector in both credit access and interest rate pricing terms.

Public comment and all manner of private lobbying will focus our MPs on the Treasury’s tax proposals. While important, this is to miss the big picture surrounding our parlous fiscal state; itself a product of a near decade of unrestrained national executive, unrestructured state corporations, unproductive borrowing and the crowding out effect that limits our potential growth-led tax take from private sector.

If, as the constitution commands, Parliament, not Treasury, makes the budget, then this is the time for our MPs to do just that. We hear from the excellent Parliamentary Budget Office that it costs us Sh4.4 million a month (or Sh52.8 million a year, including salary and perks) to maintain each one of our MPs.

Let’s get that money working now. It begins with this big picture perspective, before the devilish detail.