Treasury’s tough options that seeks to raid Kenyans pockets

By Patrick Alushula | Published Tue, February 14th 2017 at 09:14, Updated February 14th 2017 at 09:25 GMT +3

President Uhuru Kenyatta and Deputy President William Ruto chair the first cabinet meeting at State House, Nairobi.

The Government has made an about-turn from freezing employment and streamlining of the country’s ballooning wage bill and instead splashed a generous cash offer to civil servants ahead of the election date.

This latest political gimmick is likely to prove costly, even if the Jubilee government is re-elected into office on August 8.

Currently, for every Sh1 spent on salaries, only Sh0.45 goes to development meaning the Government is using up almost three quarter of its resources to pay salaries. It may get worse under the current enhanced public service wage bill where Sh100 billion has been allocated for public service pay rise.

Kenyans are staring at yet another expensive budget to appease the clamour for high salaries from civil servants even as the Government appears to have lost the bid to tame runaway wage bill that has for years remained a thorny issue.

Avoid fake news! Subscribe to the Standard SMS service and receive factual, verified breaking news as it happens. Text the word 'NEWS' to 22840

Starting July 1, 2017 Kenya may begin running on a Sh2.62 trillion budget if parliament grants the Cabinet its wishes. The proposed budget is twice the size of 2011-12 Budget of Sh1.3 trillion, presented in the last term of former President Kibaki’s administration.

A looming surge in recurrent expenditure, mostly used to service salaries, now pokes holes into the effectiveness of the 18-month job evaluation exercise carried out by the Salaries and Remuneration Commission (SRC).

Analysts are quick to warn that Kenya’s debt overhang can and will sink the economy if not managed properly. Excessive debt will also interrupt economic growth, bringing down everyone’s living standards. And make no mistake, the clock is definitely ticking, bearing in mind that the 2017/18 Budget spending plan expose the economy to Sh916 billion deficit that has either to be financed through new taxation or through borrowings.

“It is possible that we could see an increase in taxes but this does not mean that it will translate to higher collections,” said Nikhil Hira, a tax expert at Deloitte East Africa

But take note that a deficit by itself is not a bad thing. Deficits caused by reckless spending like financing recurrent spends, for instance, are bad, while deficits caused due to capital spending are generally regarded as good ? as long as the investments generate positive returns. Every year, the Government presents a budget, which is simply the spending plan of the government for the coming year. The budget, in turn, is financed by tax revenue. But tax revenue alone is usually inadequate to cover the entire budget, creating a mismatch between revenue and expenditure. This mismatch is termed as a ‘budget deficit’, and in order to finance it, the government resorts to borrowing money or introducing new taxes or expecting funds from donors.
The SRC evaluation, once touted as a tool to harmonise salaries as well as cut the wage bill, may have cost tax payers money but delivered relatively very little returns or worse still, left the tax payer with a bigger burden with its new salary review proposal.

On Thursday last week, the Cabinet, in a meeting chaired by President Uhuru Kenyatta, approved 2017-18 budget proposal of Sh2.62 trillion which may see the State once again spend more on salaries at the expense of development.

“The proposed budget estimates provides adjustments to provide room for allocation of Sh100 billion for salary increases for all public servants starting July 2017,” said State House in a communication read by its spokesperson Manoah Esipisu in an attempt to tone down the impact of such an award.

In addition, Cabinet is proposing allocation for the harmonisation of public sector salaries and allowances, civil service pension, and hardship allowances. These measures all point to more recurrent expenditure spending.

The Sh100 billion question is why has the Government suddenly gone back on its promise to control runaway recurrent expenditure? Only a month ago, Rotich ordered freeze on new employment, except for essential services such as security, health and education. Rotich’s memo to all Cabinet Secretaries and accounting officers also stopped upgrading of schemes of service in public service.

But last week, State House unveiled the Sh100 billion salary award.With the Government expecting to raise Sh1.72 trillion from taxes, this may have deep consequences on the tax payers’ pockets to meet the extra Sh916 billion deficit. And with different sectors of the economy shedding jobs at close range, Pay as You Earn, the chief source of tax, realising its target appears a tall order.

Given the planned increase in the wage bill, the hopes for the SRC to realise gains from this extensive survey may have been blown up. With Rotich’s proposal not giving details on the reasons behind the Sh100 billion, it remains to be seen if this is to accommodate SRC’s job evaluation exercise. It also comes at a time when government continues to engage in a back and forth with doctors on pay rise as patients continue to suffer in hospitals. Teachers also had to contend with the president’s bold declaration that public coffers could not support their demands.

The latest move therefore leaves a trail of questions on the sustainability of the wage as had been promised by SRC. Already the 2017/18 Budget will have to plug the Sh916 billion deficit, meaning the government is once again determined to live beyond its means.

If the proposals go through, it will also mean that for every Sh100 spent, Sh35 will be from debt, donations and grants. With every Kenyan citizen currently owing the world at least Sh79,000, the figure may rise depending on just how much donors and grantors step in to bridge this huge Sh916 billion deficit.

The clamour for pay increases, accusations and counter-accusations over past collective bargaining agreements have seen the quality of public service hurt. Education and health sectors have been characterised by strikes even as workers demanded for higher salaries.

Despite the Government insisting it has no money to add civil servants and even went ahead to apply austerity measures on the 2016-17 supplementary budget, the proposed 2017/18 Budget plan signals change of tune.

Since 2010, when SRC was created to among other roles ensure that the total Public Compensation Bill is fiscally sustainable, the commission has been under spotlight as the wage bill kept ballooning at the expense of development expenditure.

Beating the pre-SRC culture where many public service institutions determined their salaries and benefits independently or through ad hoc committee and commissions has been a challenge.

“On a national level, the fiscal wage bill becomes manageable and thus sustainable productivity and performance are enhanced,” SRC listed this as one of the benefits for the exercise.
The recent report by SRC that promises to harmonise salaries in the spirit of ‘fair play for fair pay’ had offered Kenyans hope.

A Deloitte report titled ‘A Study on Allowances Payable in Public Institutions in Kenya’ had revealed there were about 61 categories of allowances paid to civil servants, in some cases up to 10 times the basic salary. This is against the international best practice where allowances are not supposed to exceed 40 per cent of the basic salary.

As the details of the report sink, workers remain with a divided opinion. Kenya Union of Civil Servants has already said that the five job grades that SRC created are not well explained and they may stop their implementation come July.

Turning to debt again to sustain constantly ballooning budget may mean higher costs of serving borrowed funds. The country’s proportion of external debt has steadily been increasing, from 18.9 per cent in 2010 to 25.6 per cent as at June 2016.