President Uhuru Kenyatta’s introduction of unpopular but necessary tax hikes and spending cuts has put our Sh5 trillion public debt in the spotlight. Although reform is needed, such as more transparent accounting of how funds borrowed in taxpayers’ name are used, the reality is that debt isn’t Kenya’s biggest problem. A bigger challenge that has long been overlooked is massive political overrepresentation.
The result of this overrepresentation, which is prescribed by the 2010 Constitution, is twofold. First, we have an increasingly unsustainable wage bill, which is one of the primary drivers of the need to borrow and increase taxes. The high wage bill reflects in the high recurrent expenditures.
For the financial year 2018/19, recurrent expenditure will amount to Sh1.55 trillion. This is more than double the development expenditure for the same period, which is projected at Sh625 billion, and a clear sign of misplaced priorities considering development spending is the key to becoming a middle-income industrialised economy.
The second and perhaps more worrisome impact of overrepresentation is that it undermines the intellectual effectiveness of government. Due to the constant competition for influence that typically characterises a bloated government with duplicated functions, holders of public office are generally more concerned about political survival than service delivery. This leaves them with limited time and interest to formulate and implement innovative policies that stimulate economic growth.
A leaner and intellectually effective government is better suited to address some of the key challenges facing our economy. One challenge that needs urgent redress, for example, is the huge imbalance between informal sector jobs and formal sector jobs. The formal sector only accounts for 17% of jobs in Kenya, with the rest being in the informal sector, according to data from the Kenya National Bureau of Statistics (KNBS). Moreover, over the past decade, our economy has gotten less formal.
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Informal sector jobs in Kenya grew from 8.7 million in 2009 to 12.6 million in 2015, a 44 per cent increase, whereas the formal sector saw a growth of 28 per cent from 2.0 million in 2009 to 2.6 million in 2015, according to a study by the African Research Institute.
Because there are far too few stable formal jobs, KRA struggles to raise sufficient income tax, especially when the labour market is rocked by layoffs, as was the case in 2017 when electoral uncertainty and unavailability of credit negatively impacted the private sector.
Formalising the economy will broaden the tax base and enable the government to lower individual tax rates without necessarily missing revenue targets. Moreover, lower individual tax rates will stimulate productivity and attract more investments, leading to economic growth.
However, the policy framework needed to bring this kind of reform cannot be developed in the current political landscape. Because of the bloated size of government, there are too many vested interests, duplicated government functions and Machiavellian scheming in different government departments. Against this backdrop, formulation and implementation of sound policies isn’t simply a priority.
We need a constitutional review to tackle the problem of overrepresentation. It is interesting that the State of California, whose GDP of $2.45 trillion is close to 40 times Kenya’s $63 billion, has 127 elected officials compared to Kenya’s 2494 elected and nominated officials.
The high administrative costs of running our government is making it harder for it to pay its suppliers on time, if it all. An example of this is the advertising bills the government owes media houses, which now exceed a billion shillings. This has put media houses in a precarious financial position. If the state wants better relations with the media, it first needs to appreciate that media houses are businesses. The same holds true for other suppliers that have not been paid for goods and services supplied to the government.
It is not the size of government that matters, but its intellectual effectiveness and commitment to serve the people who elected it. The proposal to cut back on the size of government may be unpopular, but it is needed at moments such as these when Kenya’s competitiveness is under threat and neighbours such as Rwanda, Ethiopia and even Tanzania are emerging as alternative destinations for investment. A constitutional review is long overdue.
Mr Kittony is the National Chairman of the Kenya National Chamber of Commerce and Industry chairman@kenyachamber.or.ke
