The hard task ahead for Kenya Kwanza after tax bill collapse

As the 2024 fiscal year begins, the Kenya Kwanza administration faces hard questions that are as economic as they are political.

A second week of anti-tax protests meant the 2024 Finance Bill was not signed into law, but this was really an accountability moment for Kenya’s leaders. 

Let’s quickly recap.  June 25 experienced the peak effect of Gen Z protests.  By the end of that day, the military had been called in even as President Ruto addressed Kenyans.  June 26, the President announced that he would not sign the bill and promised to set up a multi-stakeholder forum to “debate the content of the bill and other auxiliary matters”.  

The next day, June 27, we had more protests, with fresh political demands. June 28, the President signed the Appropriations bill into law, while Treasury issued its warrant circular.  The scope of military deployment was confirmed “until normalcy returns”. 

Finally, on June 29, following the promise made three days earlier, an initiative titled the Youth Engagement Forum for Inclusive National Development was announced by the Executive Office of the Presidency 

Let’s start with this last one before going back to budget matters. Much of the strong reaction has been negative; with a consensus view that,  by unilaterally setting out the terms of engagement for this forum, this administration simply doesn’t get it. 

First, there’s the usual “gravy train” feeling; think about a National Multi-Stakeholder Forum (NMSF) located in 47 counties, working upwards from ward level and overseen by a 100-person National Steering Committee (NSC). 

Then there’s the topics for discussion. Jobs and other opportunities. Tax policy. National debt burden. Representation and accountability. Anti-corruption measures. Any other business.

This sounds as BBI or NADCO, as it gets. Someone on social media even compared it to the KANU Review Committee that was established after the Saba Saba riots of 1990.  It is ironic that the deadline for nomination of names for this latest forum just happens to be 7th July 2024. 

We won’t even get into its work methods, but it seems somewhat ironic that, in typical government fashion, the youth the forum targets have not actually been consulted on its design.  I will return to youth engagement at the end, but let’s turn to fiscal year 2024/25 implications. 

On dropping of the Finance Bill and signing of the Appropriations Act, many have been quick to turn to legal questions. Can the President refuse to sign a bill that Parliament has passed? 

Can Parliament withdraw its own bill by deleting its clauses? Is a Repeal Act required if there is no Act? 

Can the Appropriations Bill be signed without a Finance Bill? Once we enter this interesting territory, one could surface further questions. 

Can the Division of Revenue Act, which relies on past audited, and not forecast, revenues, be amended? Is the legally required Budget Statement invalid? (put differently, was a false document uttered?). I will leave these questions to the lawyers.

Back to the 2024/25 numbers.  Here’s a quick reminder.  We had a Budget Policy Statement (BPS) at Sh4.18 trillion in spending (Sh5.03 trillion including debt redemption/rollover) that was reduced in the final estimates to Sh3.99 trillion (Sh4.84 trillion including debt redemption). 

On the revenue side, the BPS target of Sh3.43 trillion was reduced to 3.34 trillion in the final estimates. 

When the 2024 Finance Bill was first introduced, we heard that the aim was to raise Sh302 billion out of that Sh3.34 trillion. Then we had public participation, which led to various concessions. 

Yet, after the concessions, the final bill was to raise Sh346 billion which is now gone. Either I am missing something here, or we have some serious Kenya Kwanza fuzzy math! 

Sticking with the big picture, that Sh346 billion shortfall cuts spending to Sh3.65 trillion (Sh4.49 trillion including redemptions) and about Sh3 trillion in revenues (excluding grants). 

As has been the case over the years, the revenue target is overambitious, but let’s consider the spending cuts. 

While the President’s statement spoke about cuts being shared equitably between the national and county governments, the Treasury warrant circular focuses these cuts on national MDAs. 

These cuts will be captured in the first Supplementary Budget Estimates for 2024/25.  

The President’s Wednesday statement spoke of cuts in areas that have drawn media attention and stoked public anger, such as the Executive Office of the Presidency’s confidential vote, travel, hospitality, purchase of motor vehicles, renovations and other expenditures. 

The Treasury had earlier identified cuts amounting to Sh200 billion arising from concessions to some Finance Bill provisions (again, back to that fuzzy math, the original bill’s target was 302 billion, which would lose 200 billion in concessions but the final “conceded” bill was then going to raise Sh346 billion?) 

Here are some closing thoughts relating to this Supplementary Budget. The first, non-negotiable idea should be that the counties must not lose anything, as a matter of law, equity and fairness.

That is, they keep their equitable share of Sh400 billion, and their added allocation from national government.  Remember, they don’t get more when national government over-collects and their equitable share is, through no control of their own, based on revenues from several years ago. 

This might also be the time to consider transfer of Sh272 billion in outstanding county functions and budgets from the national government to counties.

This may sound extreme given our debt crisis, and is probably unrealistic, but it is as good a moment as any for transition into the design of government the constitution commands. It is time to starve the national government beast. 

The second, non-negotiable idea is that the Judiciary and independent commissions also keep their full 2024/25 appropriations, as like counties, they have no control of the budget framework.  It is in MDAs across the Executive where these cuts must focus in, to repeat, starving the beast. 

Which brings us to a third, non-negotiable idea that takes us back to Gen Z and multi-stakeholder engagement.  The way to make this engagement work is not with a laundry list of topics, but with specific initiatives. Take the supplementary budget as an immediate shared national priority.

Then let’s establish online spaces and physical forums where every MDA in the national executive takes all stakeholders through their budgets; program by program, then line by line. In other words, this time we will not allow MDAs to determine their own supplementary budgets and share them quietly with Treasury.  In fact, they will have to listen to citizens, online and physically.  

Since Gen Z have successfully led the protests on the Finance Bill, they should also the lead the process of slashing budgets, and eliminating unwanted, unnecessary and wasteful programs.  There are many who have ideas for this, with suggestions such as eliminating spousal offices for VVIPs. 

In this simple example, we be involving citizens in the supplementary budget for the first time ever in Kenya. This is what a proper multi-stakeholder effort looks like.  Where citizens, including Gen Zs, contribute to decisions, track or support implementation and hold leaders to account.