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Hurdles in raising cash for teachers’ pay hike

COMMENTARY
By Lancy Dalton El-carbrito | September 30th 2015

NAIROBI: Kenyans are dismayed at the protracted standoff between the Government and the teachers’ unions over the 50-60 per cent pay dispute. It has denied over 14million School children in public institutions access to education. The Government empathises as much with the situation as indeed, the teachers who facilitate instruction in our schools.

While we would like to see a speedy resolution to this industrial strife, let us appreciate that the Government operates within financial and other constraints set by the Constitution and statute. Effecting the 50-60 per cent salary increment threatens the country’s economic stability.

The Government is obligated, under Section 15(2) of the Public Management Financial Act, to manage the country’s finances in a manner that leaves 30 per cent of the national and county governments’ budgets to development expenditure. It is also obliged to ensure that  the national government’s expenditure on wages and benefits for  public officers shall not exceed a percentage of the national government revenue as prescribed by regulations and further that over the medium term, the national government’s borrowings shall be used only for the purpose of financing development and not recurrent expenditure.

For this reason, the framers of the Constitution entrenched the Salaries and Remuneration Commission (SRC) in the Constitution to, among others, set and regularly review the remuneration and benefits of all State officers and to advise the national and county governments on the remuneration and benefits of all other public officers.

SRC’s mandate is to ensure public servants are compensated and remunerated in a manner that makes the total public compensation bill fiscally sustainable. SRC is committed to retain and attract successive generations of skilled people to serve in the public service. That is why we are undertaking a job evaluation exercise to determine the relative worth of the public service jobs for the purpose of establishing a rational pay structure for the public service.

The rational pay we intend to recommend upon the completion of the exercise will ensure people of comparable qualifications, experience and work will receive equal pay. The determination will be done within the financial and statutory constraints of the government.

The teachers’ standoff is distorting matters on this front. It is also asking the Government to violate principles that guide its management of the economy as per the Public Management Financial Act, 2012. Meeting teachers’ demands will not only violate the Public Management Financial Act, 2012, but will expose the country’s economy to hazards, which the Constitution and the Act were designed to protect us from.

Kenya tabled a budget statement, targeting revenue collection of Sh1.358 trillion (20.8 per cent of GDP) and overall expenditure and net lending of Sh2.002 trillion (30.7 per cent of GDP), leading to a budget deficit. Of this, Sh1.28 trillion would be recurrent, while Sh721 billion would be development expenditure. Suggestions that the Government redirect money allocated to development expenditure will infringe on the requirement that 30 per cent be assigned to development.

Paying teachers the new salary will force the Government to commit over Sh.1 trillion to salaries, thereby denying cash to important capital development projects such roads, railways, power, communications and access to water. We must invest in health and education because a vibrant economy depends on the two.

Some voices have called for Parliament to impose additional taxes to raise Sh.17billion to pay teachers. It is an axiom in taxation that ‘high tax rates put pressure upon the taxpayer to withdraw his capital from productive business’. High tax rates discourage people from working, saving and investing. This proposal can only increase the cost of doing business for investors.

The investors will invariably pass the cost to the tax payer, who will in turn cut their spending habits. This is a vicious cycle that will kill the goose that lays the golden egg; wealth creation and the employment opportunities associated with it.

Newspaper reports have quoted people urging the Government to sell Treasury bonds and bills and collect the money to pay teachers. One of the principles of the Public Financial Management Act, 2012, notes that “the national government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure”.

 

Borrowing money from the stock market is done for strategic interests; it would be imprudent for the Government to use loans to sustain the payment of salaries to its employees. The ripple effect in the money market is dire: interests rates will go up, thereby exacerbating the cost of loans for investors and other people who move the economy of any country.

I have painstakingly explained the situation in which all of us; the Government, teachers and players in the country’s political economy, are staring at.

The Greece meltdown did not just happen. In the 10 years before the financial crash, public sector wages doubled and departmental spending soared. In many ways, the weakness of its economy and public finances was brutally exposed after 10 years of living beyond their means.

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