SRC wants subsidised car loans for all public servants, but who will pay for it?

Saturday September 19 2015

 

By Jason Lakin

It is shocking, but it is true. In December 2014, the Salaries and Remuneration Commission issued a circular that advised both national and county governments to expand a benefit for car loans and mortgages (previously limited to certain public servants) to cover the entire public sector.

The nature of this benefit is a cash-backed fund to supply 20-year loans at the massively subsidised rate of 3 per cent.

When I first heard about this, I didn’t believe it. After reading the circular myself, I asked the next logical question any sane person would ask: How much is that going to cost? That is apparently not the first question that crossed the SRC commissioners’ minds, as there is no available estimate of its cost.

I will say something more about the cost, which runs into the hundreds of billions of shillings, in a moment. For now, let us reflect on the absurdity of such a situation. What did we intend when we put the Salaries and Remuneration Commission into place?

The Constitution may be a useful guide. It says (section 230) that the commission shall set state officer remuneration and advise on public officer remuneration.

It further states that the principles that SRC shall take into consideration are: Fiscal sustainability, the ability of the public sector to attract talent, productivity, performance, transparency and fairness.

We may ask ourselves why setting and advising on pay should not be done directly by the employer (say, the Public Service Commission, or the treasuries of the respective governments).

The intention may have been to partially insulate these decisions from political pressure and to give an independent commission the latitude to look at compensation holistically, making difficult trade-offs necessary to manage spending.

Otherwise, the decision could have been left with the relevant treasuries to weight compensation against other priorities and make a politically informed assessment of the best way to allocate resources.

This most recent decision on car loans and mortgages would seem to suggest, however, that we have made a grave error somewhere. If such a decision can be taken by an independent commission without debate and without consideration of its fiscal impact, we are worse off than if we had left these decisions to the treasury.

No serious treasury can allow massive increases in public sector benefits without costing them, because the money to pay for them must come from other things that that treasury will be held accountable for. If this is not a constraint on the recommendations emanating from SRC, we are in a serious bind.

One of the main problems with SRC up to this point is that it seems primarily concerned with perceived fairness and harmonisation, rather than the other parts of its mandate (its own FAQ online defines its mandate in terms of inequality within the public sector).

In line with this, SRC argues that there is no basis for making benefits such as car loans available only to legislators and certain executive officers while they are not available to the broader public service.

This is a fair point, but it must be measured against two others. First, what is “fair” may be to expand benefits, but also to reduce them. Expansion may not be fiscally sustainable, so looking at fairness and sustainability together may require cuts. Second, fairness cannot apply only to public sector workers.

There are plenty of Kenyans who will not have, in their lifetimes, the chance to get a 20-year mortgage subsidised to 3 per cent. Yet they pay taxes so that others can enjoy these benefits. Further expanding their burden to pay for these benefits is a fairly novel interpretation of “fairness.”

SRC also seems to have missed out on the “transparency” bit of its mandate. Its website contains no significant circulars, research or guidance since 2013. SRC has done little to clarify its role to the public. We often hear of SRC setting public officer pay, yet it only advises on the same.

Looking back at the Constitution again and SRC’s composition, it is notable that the commission is actually not independent of the interests it regulates. It is comprised primarily of nominees of government employees, including representatives of parliament, teachers, police, and unions. Are these the right people to control their own pay?

So about those costs again. No one has yet estimated the full cost. But my colleagues and I estimate that setting up a single, cash-backed fund to lend only to the core county personnel (governors, MCAs, ward administrators, chief officers, etc.) who are eligible (but not including service delivery workers, like doctors) is roughly Ksh120 billion.

If you were to then add all of the service workers at county level, and all national workers, it is obvious that these costs would explode. Salaries and remuneration craziness, indeed.

Jason Lakin is Kenya country manager of the International Budget Partnership. E-mail: [email protected]