Premium

Rhetoric meets reality in Ruto's lofty pledge for robust economy

A man pushes a handcart along City Hall Way on September 26, 2022. [Collins Kweyu, Standard]

Experts have questioned the government’s push to slash workers’ salaries by raising their monthly contributions even as it remains silent on how to stem runaway corruption and wastage. 

Besides pushing for increased monthly contributions to the National Social Security Fund (NSSF), President William Ruto also wants everyone, including the hustlers who eke out a living in the ubiquitous informal sector where the pay is low and erratic, to pay taxes.  

“He is giving them (hustlers) a raw deal,” said Samuel Nyandemo, an economics lecturer at the University of Nairobi.  

Dr Nyandemo is surprised that, just as in the campaign period, the president has barely mentioned the word ‘corruption,’ a signal that he is not keen on going after individuals who loot from the public coffers.  

It does not help that corruption cases against some of the individuals who in the past have been arraigned in court for engaging in graft have been collapsing.  

The recent developments, various economists have told The Standard, are likely to add to the pain of high cost of living which has seen prices of basic  commodities in the economy increase by a five-year high of 9.6 per cent in October.  

“There is a lot of emphasis on collecting, there is less clarity on what they will do in terms of efficiency by sealing the loopholes through which public funds have been lost,”  said Dr Joy Kiiru, an economist.  

Yet, the biggest problem that bedevils the government is on the spending side, said John Mutua, a programme coordinator at the Institute of Economic Affairs Kenya, a think-tank.   

Mr Mutua would like the government’s spending rationalised by instituting austerity measures that will cut back on non-core spending such as training and travelling.

Euphoric support

Dr Ruto, who was swept into power by euphoric support from millions of poor Kenyans, does not only want to bake a bigger national cake by improving the productivity of such series as agriculture and manufacturing, he also wants the cake distributed ending the current sad state of affairs where those at the bottom of the pyramid feed off the crumbs that fall from the high table.  

He has already noted that Sh50 billion Hustler Fund will be launched at the beginning of next month, offering small businesses access to cheap loans.  

To finance most of his projects, Ruto has said he will be seeking to cast the tax net deeper into the informal economy where traders and workers barely pay taxes on their income.  

Interestingly, the president also wants the government’s total budget to be reduced by Sh350 billion.   

Nonetheless, Ruto, whose Cabinet was sworn in last week, has not indicated how exactly he would like these savings made.  

Ruto could ride on a programme that Kenya has with the International Monetary Fund (IMF), which is aimed at reducing the country’s debt vulnerabilities, to make some some expenditure savings.  

However, Mutua does not think cutting the budget by Sh350 billion is practical given that there are a lot of commitments that had already been made. However, cutting it by half of that is doable, according to Mutua.  

The IMF, whose delegation is already in the country for the review of Sh270 billion facility, wants the country to live within it’s means by collecting more taxes and reducing spending.  

As part of the program, some parastatals will undergo surgery in what is aimed at weaning them off the exchequer and this reducing government expenditures. 

Mr Mutua reckons that those parastatals that are loss-making and are not serving any social purpose such as education and health, should be wound up. 

Besides weeding out ghost workers from the payroll to reduce the wage bill, the government can, as it has said it has been doing, also freeze employment for a year or two, Mutua proposes.  

The introduction of the new NSSF rates is one of the ways in which the government wants to mobilise savings to increase investments.  

Mutua agrees with Ruto’s diagnosis of the country’s low national savings, albeit he is not sure whether the treatment that has been prescribed is the right one.  

“Investment is a function of savings,” said Mutua.   

For example, pension for civil service has for long been contributed by the government only. This is unlike in the private sector where the tradition has been for both employee and employer to contribute for the former’s retirement.  

That is slowly changing after the government rolled out the superannuation scheme that has seen new government workers begin to contribute for their retirement. 

Such funds, Mutua said, will contribute to investment.  

Ruto insists that the current rate is too low to offer workers any meaningful peace in their sunset years.  

However, Nyandemo insisted that the introduction of the new NSSF rates must be done constitutionally, pointing to the need to respect a court decision that declared some sections of the NSSF Act 2013 including one that introduces the enhanced pension contributions, unconstitutional.  

“All structures must be in place to safeguard people’s money,” said Nyandemo.  

And on taxes, economists want the new administration to show accountability.  

“As you are telling everybody to pay taxes, assure them that the taxes will be put into good use,” said Nyandemo. 

The don added: “What they want is the little they are paying is put into good use.” 

Nyandemo said that after talking big during the campaigns, Ruto must have realised that there is not enough cash in the public purse, a situation that has seen him express interest to go even after the millions of hustlers who voted for him on the promise that life would be easier in his presidency.  

The don also wants the new administration to chart the way forward reducing the cost of living, advising them to re-introduce subsidies on maize flour as a short term measure to bring down the cost of living.  

President Ruto has asked Kenyans to give him a year to bring the price of unga down.  

Dr Kiiru noted that the government is also not very clear on what is to be done with the big projects such as the Standard Gauge Railway.  

“The truth is that they don’t have that kind of money to complete those projects,” said Kiiru.  

Mutua said: “We don’t have to meet all the expenditures. We have to have priorities.” 

Economists agree that something has to be done on the tax side as well. 

The issue predictability and stability in the tax environment, experts agree, is a positive one to investors who have been grappling with constant changes in tax policies.

 The government should also stop the over-reliance on the formal sector which only constitutes 20 per cent of the economy.