Budget messages that are hidden in plain sight

A story in Thursday’s Business Daily got me wondering about our true fiscal state. It’s now less than two weeks to the end of the current 2019/20 fiscal year. Yet counties have “only” received Sh257 billion out of this year’s Sh316.5 billion equitable share of funds from national government.

So, by week 50 of 52 (96 percent of fiscal year), allocations are at 80 percent of requirement. It is also implied that part of the unremitted Sh59 billion will settle roughly Sh15 billion in pending bills.

Whether or not national government ministries are in a similar state, this is a good time to ponder how much longer and further Kenya can go when taxes “chase” spending rather than the other way round.

Which brings me to CS Ukur Yatani’s 85 page Budget Statement. To be fair, there was a certain “freshness” to its reading, and commentators lauded its presentation. My sense is that the devil is no longer in the detail, but hidden in plain sight. Here are three quick perspectives.

First, the numbers we didn’t hear. Yes, one question already asked is what’s happened to all that Covid-19 cash and “in kind” funding we’ve received? Here’s a few more. What’s it with that Sh1 trillion in committed donor funding that the IMF says we aren’t committing, but paying commitment fees for? What about those 1,000 stalled projects and their Sh1 trillion completion cost, again, per the IMF?

In his latest Covid-19 speech, President Kenyatta told us the first stimulus represented “Sh216 billion in tax refunds, rebates and waivers”. Where was that number in Treasury’s statement? Finally, debt. Interest payments to China, the Eurobonds and our most recent (emergency) syndicated loan will total Sh102 billion in 2020/21. Add Sh29 billion in interest for unspecified “new loans”. Against agriculture’s Sh52 billion, Sh33 billion to social safety nets and Sh28 billion to trade, tourism and industry.

Second, the numbers in perspective. Tax revenue is targeted at Sh1.62 trillion. That’s Sh591 billion in income tax at a time of falling or zero income, and re-taxed pensions for the “over-65”. Add Sh415 billion in VAT (including LPG and digital space), and Sh403 billion in customs and excise after importing and making less. Parliament hasn’t yet passed the 2020 Finance Act that partly justifies these numbers.

Quick question: How did we get to an incredible Sh525 billion in annual tax expenditures (incentives, reliefs and exemptions), and why is this Covid-19 moment the best time for “clawback”?

To supplement taxes, we hope for Sh260 billion in internal ministerial revenues, assuming they are open for business, and Sh57 billion in grants to get to Sh1.95 trillion in uncertain receipts.

Let’s nuance the “macro-spending”.

National government (recurrent and development) costs us Sh1.89 trillion, which leaves Sh60 billion of total receipts for everything else. On the other hand, all recurrent expenditure including counties costs us Sh1.82 trillion. Worryingly, our tax collections can’t pay for national government, ignoring counties. Sadly, our tax take doesn’t cover the daily running of our 48 governments, before development.

By law, consolidated fund services (CFS) of Sh1 trillion are a first charge on the consolidated fund. That would leaves Sh600 billion in taxes to run our national and county governments. With a national government wage bill at Sh500 billion we have a Sh100 billion balance for everything else.

In 2021/22, CFS is projected at Sh1.1 trillion and Sh1.35 trillion in 2023/24, while debt service will pass Sh1 trillion, and hit Sh1.15 trillion. Pensions (Sh92 billion in 2019/20, and Sh119 billion in 2020/21) will climb to Sh163 billion in 2023/24. We are living in interesting times.

In sum, the budget balances by rolling over Sh442 billion in debt and borrowing another Sh804 billion to fund a Sh3.23 trillion government that raises Sh1.62 trillion in taxes, collects Sh260 billion in government services we still have to pay for, and fundraises Sh57 billion in grants that Kenya doesn’t have to repay.

Finally, something we’re not talking about. Think of the 10-point Post Covid-19 Economic Recovery Strategy (Pages 29 to 31 of the Statement) that will link us to our “post-Vision 2030” development framework, the SDG Vision 2030 transition and the African Union’s Agenda 2063.

Let’s break this down. “Post Covid-19” assumes that the disease will end, not that it is endemic. Vision 2030 was a 22-year vision launched 12 years ago, with 10 years to go. Agenda 2063 equals 33 years after 2030, implying our next vision runs for that period, right up to Kenya’s independence centennial. It’s all nicely linear, no regard for the “VUCA”(volatility, uncertainty, complexity, ambiguity) of today.

So there we have it. Three perspectives on the budget, hidden in plain sight. Occam’s Razor anyone?