Budget maths not adding up and why it's in order to blame our MPs
Opinion
By
Dennis Kabaara
| Jun 15, 2024
The sequence of events has been perfect. Our three arms of government - Executive, Legislature and Judiciary - presented their budget estimates for 2024/25. The National Assembly that makes the budget decided to top up the Executive and Judiciary estimates while slashing its own. The lesser known fact is its own budget bid was way over the ceiling, so MPs ended up getting less than what they wanted but more than their ceiling.
This is what we might call the extreme version of "budget padding"; overbidding in order to settle for less as more. In the meantime, the World Bank threw us a chuck of cash and the IMF, finally, signed off on their 7th review of monetary support we receive from them. Oh! And we also experienced close to a fortnight of public participation on our highly unpopular Finance Bill 2024.
The suspicion
Bringing this all together was Thursday's Budget Statement read by our Treasury Cabinet Secretary Njuguna Ndung'u. As predicted, it was boring, because this stuff tends to be boring. Less predicted was that neither the Financial Statement nor the Budget Summary were published this time round. This is always a cause for suspicion, like, say, the number-crunching hasn't quite added up yet.
So we are reliant on the actual statement, and a couple of annexes (on revenues, loans and grants (the "revenue book") and basic econo-fiscal statistical data (the statistical annex)). As well as the "Mwananchi guide" to the budget where we rudely encounter the rather clumsy and probably justiciable bad language theme for 2024/25: Sustaining Bottom-Up Economic Transformation Agenda, Fiscal Consolidation and investing in Climate Change Mitigation and Adaptation for Improved Livelihoods.
As should be expected, the statement was full of promises. From economic (GDP) growth of 5.6 per cent in 2023 to a forecast of 5.5 per cent this year and next. Interestingly, the World Bank's latest modelling in its June 2024 Economic Update places us at a lower 5 per cent. We prefer to shoot for the moon in our public pronouncements, hoping that the self-same public is unable to connect the dots. Since we have no other public forum in which to discuss the state of the economy, the decent thing might be to offer a more realistic perspective on how we step up from our 4-5 per cent "Kanu" growth rate (as India did in growing from their Hindu one).
This brings us to our fiscus. The plan is a balanced budget by 2027. In getting there, we hope to reduce the budget deficit (revenue versus spending) from 5.7 to 3.3 per cent of GDP. Our tax gap in uncollected taxes (before Finance Act 2023 and Finance Bill 2024) is 11.5 per cent of GDP. Our tax expenditure (exemptions, waivers etc) is 2.9 per cent of GDP. Taken summatively as a thought experiment, that's 14.4 per cent of GDP when our actual tax take target for 2024/25 is 18.5 per cent of GDP and our medium-term target is 25 per cent. This maths is not mathing!
This is why it is perfectly in order for everyday Kenyans to call out their Parliamentary representatives on the Finance Bill 2024 and our courts to move firmly on Finance Act 2023.
The first step here might be to question how expenditure estimates are presented to Parliament without reciprocal revenue details. This sounds like the legislative beef already in our courts - how do we approve spending through an Appropriations Act when we haven't approved how we pay for it through a Revenue Act, not just the Revenue Book, that is more than the incremental Finance Act? The legal question here centres on the idea that every Budget has a time limit - one year and no more - and this should apply equally to what we spend and how we pay for it.
Of course, revenue is a function of economic performance. Which might raise a constitutional question about how we expect to tax everyone to death in tough economic times. Think about Central region, the most proximate space to Nairobi, and hence, the most affected by these tax edicts. That's the first place to go for the "hard to tax" but is it equalizing treatment?
The second step takes us to our debt crisis. Treasury CSs are always shy to talk about this, and Thursday's budget statement was no exception, but where's the mathematics that doesn't just deliver a budget surplus, but drastically cuts our public debt obligation? Cut spending, you might say, but how do we do this when government is still a substantial part of our incomes? On the other hand, in calling for fiscal responsibility, doesn't our Constitution implicitly demand a balanced budget? Isn't this the Singapore benchmark we loudly proclaim our aim for?
Debt register
There is another part to our debt question. Everything from value for money to return on investment. Where is the long outstanding and publicly demanded comprehensive debt register audit we urgently need to understand what our higher, more pervasive taxes are paying for? Put differently, what did our past debt buy, and what is our current debt appetite purchasing?
The third step takes us to spending itself. The 2024 budget statement speaks to a rationalisation of public spending. Thirty per cent cuts for Semi-Autonomous Government Agencies (SAGAs). The usual waffle about reduced travel, training and vehicles. The eternal commitment to e-procurement and a single payroll. And, of course, a commitment to technology as cost-saving.
Meanwhile, the key spending cuts are largely rights-based. Like education and healthcare. Then there's the confusion. It is becoming increasingly difficult to link this administration's fine words with its fancy (and correct) ideas - six objectives, five pillars, five clusters, nine value chains etc. Maybe these ideas - "The Plan", BETA etc - are beyond the bandwidth of our political leadership.
Unkept promises
This simply isn't good enough. Let's remember that a day before this budget statement, a record deficit - on account of sub-optimal revenue collections and uncontrolled public spending - was signed off. In other words, the promises of 2023 were neither kept nor realised.
As our MPs congregate to settle the Finance Bill 2024, let's conclude this thought experiment from three justiciable perspectives. Did we get a full revenue explanation - beyond the Finance Bill's incrementalism - to understand what our taxes are paying for? Is a spending budget legitimate without the revenue detail? Did we get a full debt explanation - what is our past debt paying for and our current debt appetite buying? Did we get a full spending explanation - back to those big ideas? These questions are already in the court of public opinion. They will soon find themselves in the formal courts of justice. To repeat, this simply isn't good enough.