From Canaan to crisis: The reality of broken promises, economic missteps

 

The big events of the week have been the tabling of the budget for the 2024/25 financial year and the Finance Bill 2024 at the National Assembly. By now, any patriotic citizen with at least an average sense of awareness on national matters has some idea of what the government has proposed for the next 12 months, good or bad.

This column has done its best over the last three months to highlight key points from not only the two documents now before the National Assembly but also the predecessor documents that form the annual budget cycle. Today, we shift our focus to what to expect from these policy instruments in the next fiscal year.

To gain insights into what to expect, we shall look back at the actual performance and trends from the outgoing budget period.

Lost in the ongoing public discourse are the Controller of Budget’s (CoB) third-quarter budget implementation monitoring reports for the first nine months of the 2023/24 fiscal year.

The report for the national government was issued in May, while the consolidated report for the counties is dated April 2024. These reports reflect the performance of the outgoing controversial Finance Act 2023 for both the national and county governments.

Sticky issues

Similar to last year’s revenue-raising proposals, the 2024 tax proposals have courted controversy and opposition from all quarters, businesses, and individual taxpayers alike. As of March 31, 2024, the tax revenue raised under the current Finance Act was Sh1.535 trillion, against a target of Sh2.495 trillion for the year. Compared to the same period in 2022/23, this is only Sh142 billion more. By all estimations, there is no way the taxman is going to collect the outstanding deficit of Sh960 billion in under three months. Actually, the tax revenue shortfall may be larger than the already projected Sh300 billion.

Given this data, plausible questions arise: Are the extra coins collected worth the economic disruptions caused by the 2023 Finance Act from an objective cost-benefit analysis? Did it slow down the debt appetite that was the basis for the painful tax measures? Did the taxes introduced meet the basic criteria of productivity in taxation? Unfortunately, the available official data seems to suggest otherwise.

This leads us to the debt performance indicators. In the first nine months of the 2023/24 fiscal year, external debt borrowings totaled Sh506.9 billion, while domestic debt was Sh603.2 billion. For a similar period in 2022/23, external and domestic borrowings were Sh235.48 billion and Sh396.32 billion, respectively. Therefore, despite the punitive tax measures implemented, the appetite for public debt increased during the comparative period.

On the expenditure side, debt service amounted to Sh1.244 trillion in the nine months, compared to Sh886.47 billion in 2022/23. This consumes about 81 per cent of the tax revenue collected for the period and 46.1 per cent of the total exchequer receipts of Sh2.7 trillion for the period. From the revised estimates, it is expected that this year’s debt service will close at Sh1.866 trillion, translating to about 75 per cent of target tax revenues, assuming the taxman meets his target.

Where, then, is the justification for the current push for harder tax measures in 2024, when 2023 does not seem to have yielded much on debt relief?

Elephant in the room

If the revenue numbers are proving to be illusory, then where is the problem? The government continues to perpetuate the notion that the tax proposals are necessary to fund the proposed budget. But who said the budget proposals are cast in stone? Why can’t they be reviewed downwards to fit our size? The expenditure patterns clearly point to a trend of digging deeper into the revenue gap instead of taking remedial actions.

For instance, of the Sh2.7 trillion exchequer receipts approved for spending by the CoB in the nine months, only 17.2 per cent went into development expenditure. The breakdown of development spending for the period indicates that 74 per cent of this was transfers to State agencies, meaning part of it went to recurrent expenses in their budgets. Even then, most of the development spending in the ministries went to renovations, with State House leading in taking a bite of the pie. Another huge portion went into subsidies, meaning very little of the development spending actually contributed to the productive side of the economy.

However, employee spending, travel (domestic and foreign), pending bills, and requisitions under the famous Article 223 (out-of-budget spending) reveal the lies of the Kenya Kwanza administration. Salaries and emoluments consumed Sh436.18 billion, domestic and foreign travel cost Sh18.18 billion, while pending bills stood at Sh486.8 billion and Sh152 billion for the national and county governments, respectively. Despite the reported high travel costs, the figure for the Executive Office of the President is grossly understated, meaning actual travel costs are higher than the available data.

Similar to last year, Parliament leads in travel costs, both domestic and foreign. This betrays their solemn duty of representation and oversight against the abuse of public resources. Article 223 continues to be abused to sneak in expenditures that are anything but emergencies. An estimated Sh66.72 billion was approved by the National Treasury under this Article. Notable requests include Sh400 million for motor vehicles by State House, Sh16.2 million for an official car by the Cabinet secretary for arid and semi-arid areas, petrol subsidies, salaries for the Forestry Department, and renovations for State House.

It is not clear if the entire amount was spent, because the CoB indicates having approved only Sh8.27 billion of what Treasury approved. The CoB further notes that ministries and agencies failed to report foreign travel expenditures, overdrawn budget lines, and public debt exceeding legal ceilings.

Faced with this overwhelming evidence against the government’s policy thinking, one may wonder what options are left for the country going forward. From the onset, it was clear that a difficult path lay ahead for any incoming administration after the 2022 General Election. When the Jubilee administration was high on destructive economic policies and a debt-driven, foreign-contractor development approach, many who questioned the soundness of this were branded noise makers and told that the benefits would become evident in the coming years. Now, we all have evidence that this was truly voodoo economics.

Unfortunately, the Kenya Kwanza policy wonks have picked up where their predecessors left off. They refer to experts who critique the plausibility of their non-working policies as ‘social media economists’. Yet, the negative consequences of their misinformed proposals are lived by us, the taxpayers. The promised Canaan for hustlers has proven to be a utopian moving target.

It is clear that something has to radically change in the conceptual thoughts on the economy. Otherwise, the tired, overloaded donkey will be crushed to death.