Rubber meets the road as Ruto makes first full Budget proposal

President William Ruto during  the 2nd Day of the Inaugural Retreat for Cabinet and Senior Ranks of the Executive at Fairmont Mount Kenya Safari Club, Laikipia County. [PCS]

With the reading of the Budget Statement now set by public notice for June 8, 2023 in three weeks’ time, Kenyans will hopefully encounter a clear articulation of the economic journey the Kenya Kwanza administration has promised.

Budget making is second only to constitutional making in our national governance framework. Although we still don’t have the planning MTP IV/BETA frame, there is the 2023 Economic Survey to offer us a picture of today.

For the record, June 8 will represent 43 weeks since the last election; a sixth of the way to the next.

In typical fashion, the public notice invited “budget tips/suggestions” to the Treasury CS on the 2023/24 budget at such short notice that the deadline passed on May 12, 2023. In other words, by last Friday we, the public, should have proposed to Treasury measures to accelerate economic recovery and enhance economic resilience, bring down the cost of living, eradicate hunger, create jobs, expand the tax base, improve our foreign exchange balance and promote inclusive growth. 

We were asked for suggestions to strengthen government priority programmes under BETA, ways to accelerate recovery and growth of the private sector and MSMEs, tips to foster a secure and conducive environment to promote investment growth, business and job recovery; ideas on how to integrate youth and women in achieving sustainable economic recovery, and ways to enhance revenue mobilisation and prudently manage resources.

But this is Budget season, the time when government is in full flow setting out its commitments for the forthcoming 2023/24 fiscal year. It is also, as they have already proclaimed, Kenya Kwanza’s first fully-owned budget, having inherited the 2022/23 one from the previous administration. When we step away from other things happening in Kenya, this 2023/4 budget is prefaced by two broad crises at hand - public debt and cost of living.  That’s this year’s theme. Which, ironically, is the theme that links these two crises to the boisterous Finance Bill 2023 that has been placed before Kenyans. After all, every debt service shilling paid via at free floating exchange rate reduces domestic funds available for cost of living-reducing essential social services or growth-inducing investment, forces us to import more expensive food and fuel (the hard part of our inflation) and eventually bombards us with new taxes with negative disposal income effects (business or individual) in order to balance the books when every shilling counts in our pockets.

There is, of course, the widespread expectation that Kenya Kwanza’s immediate post-election minority that is now the house majority will force this Finance bill through, as it probably does with future legislation designed to manufacture the country rather than let the country manufacture.

Once the Bill was published, the noise in support and rejection was immediate, well before the closing date for public participation on Saturday, May 20, 2023. Tax experts, business and employer groups, teachers, sections of the church and the Azimio side of the political divide have all waded in on different parts of the Bill, with the Housing Fund and cost of living being at the core of their concerns.

On the other hand, Kenya Kwanza has dug deep, actually promoting the same Housing Fund as critical to Kenya’s future, while arguing the Bill addresses the cost of living.

President William Ruto even took three hours of his busy Sunday schedule to sit with the media to offer, among other things, a positive spin on what is in effect his first major legislative effort. Because Kenya Kwanza still quite hasn’t got from campaign to governing mode, my overall take from that press event was that the conversation to take Kenya forward is still work in progress.

To repeat, June 8 will represent 43 weeks since the last election; a sixth of the way to the next. This is Kenya Kwanza’s first fiscal truth moment; the time for the rubber to truly meet the road.

Instructively, the day after the President’s event, the Office of the Leadership of the Majority Party issued a public notice to “demystify the facts of the Finance Bill”.  The short story is here that (a) there are plans to reduce the cost of living through the Bill and (b) there are plans to protect local businesses, boost our manufacturing sector and create jobs for the youth. It is a clever case of quietly reverse-engineering the Bill’s provisions back into popular objectives.

And because the Bill is taking up all of our attention, it doesn’t speak to the larger points we should be having a conversation about during Kenya Kwanza’s first full budget season.  Not that I am into endless conversations, because they end up sounding like endless campaign debates.  Former US President George Bush once pithily spoke to the need to settle the politics as “who gets to do what” so as to move to real governing as “the doing of the what”.  That’s where we should be now.

We will return to each of these points in subsequent columns this week, but there are four big things we should be discussing. Debt as debate leader. Our expenditure problem. Revenue and budget balance and the wider question of how to transform the economy while recovering it.

Let’s paint a quick snapshot of the issues at play in each of these areas.  Forget those “no more borrowing” campaign pledges. Serious debt distress was on the cards when the IMF paid us a visit recently.  What we got from the media interview by MD Kristalina Georgieva was some subtleties.

We’re not yet at (or going for) debt restructuring as an admission of debt default.  But we are nowhere near access to new borrowing from foreign debt markets. So it’s time to make our domestic debt markets more attractive, although syndicated loans and IMF funds remain available. The shilling?  Let’s free it with a trillion in foreign debt service next year.  The US$2 billion Eurobond I bullet repayment is in the budget at Sh120, what would it look like at Sh140-160?

There is more to discuss on this debt question that has become our main economic question.

Expenditure is equally as interesting. We could begin with the Sh300 billion budget cut in the 2022/23 supplementary budget that we couldn’t quite trace. Late night spending was blamed when we only found a Sh13 billion overall budget cut.  Which is ironic because a quick calculation shows that the 2023/24 budget estimates start from 2022/23 numbers that are at least Sh10 billion above those approved supplementary estimates.  And for those of us listening to promises of further cost rationalisation in 2023/23, well, the total ministerial estimate is back up by 126 billion. 

Details forthcoming, but energy, infrastructure and ICT sector will do Sh150 billion better next year.  You will not find this in the “line by line scrutiny” language we are offered on expenditure.  The smart way to deal with spending is through programs – funding, de-funding, up-funding and the like, not checking every line item of transport, travel and refreshments. Watch this space.

Revenue is, naturally the talk of town – “taxing ourselves into prosperity”.  A different political lesson might be in the offing from the other George Bush (Senior) and his infamous “read my lips, no new taxes”.  We aren’t talking cause and effect here, but we should not forget he ended up as a one-term President between Reagan’s two terms before him and Clinton’s two terms after him.

Let’s return to the Finance Bill for a moment. Not just for 2023, it has always been a clever way to ram through all manner of taxes and tax exclusions without rhyme or reason. To paraphrase Reagan, “if it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidize it”.

One would think we are in the middle of a tax policy moment right now. We even had a draft tax policy in early 2022. President Ruto spoke to Parliament about a tax policy hierarchy of wealth-consumption-income-transactions.  In other words, if more wealth was taxed, consumption taxes would fall; if more consumption was taxed, income taxes would fall, and if more income was taxed, trade taxes would reduce.  This was supposed to be the tax policy to underpin the finance bill.  But this policy is  currently locked up in the Office of the Leader of the Majority Party as a “secret” document, even as “finance bill demystifications” are offered to the public.

Isn’t there a simple, logical, basic and inclusive way to place our entire tax code against our tax policy objectives and stop this piecemeal stuff?  Like the expenditure conversation, the question here must be why we are constrained to dump good stuff (if it is) on the existing status quo of bad?

Surrounding all of these conversations is the big one – economic recovery and economic transformation.  It isn’t a Budget season discussion, but it’s one for this season. Watch this space!