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Personal Finance

Right spending quells value for tax queries

 

Citizens the world over share a common loathing for paying taxes. Different governments hold different tax schemes for their citizens with almost no individual taxes in Singapore, Brunei, United Arab Emirates, or Monaco to low tax countries such as the United States (US) to medium tax countries like the United Kingdom and Canada to high tax nations including Kenya and Sweden.

Commensurate with the pain of providing tax revenue for governments, citizens desire to know how their elected leaders spend the money and whether the returns are worth the tax paid.

In looking specifically at Kenya, the government’s recurrent expenditures have fluctuated as a proportion of gross domestic product (GDP) comprising between 18 percent at independence to a peak of 26 percent in 1994 into 1995 then down to a low of 16 percent in 2010 up to roughly 18 percent of GDP in 2017 into 2018.

When factoring in general government expenditures and net lending compared to GDP, we fluctuate about 21 percent at independence to 32 percent in 1994 into 1995 dipping down to 21 percent of GDP in 2005 while escalating back up to 26 percent in 2017 into 2018. Kenya’s GDP historically far exceeded both Tanzania and Uganda, but we also spent higher proportions of our larger GDP on government public expenditures.

But as our Kenyan population continues to grow at a rapid pace, how does the government’s expenditures compare on a per capita basis? Our research equalised the Kenya shilling to 2010 levels to make for easier comparisons.

At independence, the government spent Sh20,000 for each citizen. In 1982 we peaked at Sh36,000 and hit a low of just over Sh16,000 per citizen during most of the former President Mwai Kibaki’s administration. But since 2011, government expenditure per citizen started to quickly rise continuing into the era of devolution reaching over Sh25,000 per citizen in 2017 into 2018.

Budget components

The modified economic classification of the composition of public expenditures can be broken down into five categories: personnel, interest payments, development, total defence budget, and a combined category of goods, services, and transfers.

The largest components of the government’s annual budget have historically been, since independence, personnel followed by the combined goods, services, and transfers with the exception of the 1970s with the large funding allocations for development.

Both Tanzania and Uganda hold a much lower proportion of public sector personnel in their annual government budgets since their respective independence at 30 percent lower than ours in Kenya. Both Tanzania and Uganda spend more of their annual government budgets historically on defence along with goods, services, and transfers.

Then what type of jobs make up our public sector labour force? Kenya has always retained a much higher proportion of the overall labour force in the public sector than either Tanzania or Uganda. Our public sector workforce comprised 4.7 percent of the total labour force at independence, then went up to 7.7 percent in 1990 and down to 3.7 percent in 2007.

Since devolution we have only slightly increased our public sector labour force as a proportion of our total labour force up to 3.8 percent in 2017 into 2018. Teachers as well as general government staff each make up the two almost equal components of the government’s wage bill.

Parastatal workers come in third with the armed forces personnel a distant fourth. Armed forces labour comprise larger proportions of the budgets of both Tanzania and Uganda with Uganda spending much more on teachers than any other category.

Next, within our public sector workers, how has their purchasing power compared over time? In places like the US, real wages for average workers have plummeted as inflation exceeded wage increases over the past 30 years. But in Kenya adjusted for inflation, the average government worker earns about Sh33,000 constant over the past 10 years in 2010 Kenyan shilling equivalent. Public sector wages are only staying constant with inflation. We see a direct correlation in the research as the power of trade unions decreased over time with more stringent restrictive regulation, real wages for public sector workers also declined.

In summary, while Kenya enjoys a much larger GDP per capita than Tanzania and Uganda, we also hire a larger proportion of government workers and spend less proportionally on development projects.

What types of government investments and expenditures would help keep Kenya growth and equality focused into the next decade and beyond? Share your thoughts on Twitter through the hashtag #BDeconomics.

[email protected] or on Twitter: @ScottProfessor

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