Division of revenue debate is about Kenya’s national priorities

Saturday February 8 2014

 

By Jason Lakin

If all goes according to plan, then within a week of the publication of this article, Kenya’s parliament will have started its second annual debate over how much money national government should get, and how much counties should take.

Last year, this process was extremely contentious, and it is likely to hot up again. While we should not be concerned when decisions involving big money become heavily political, we should worry if they are exclusively political. The politics should be tempered with at least some substantive, evidence-driven debate.

So, to that end, what questions should Parliament ask of this year’s Division of Revenue Bill? Here are my top four:

Does the proposed division of revenue properly reflect the country’s priorities? Up to now, the division is based on estimates of how much the country allocated for various services in 2012/13, the last budget before devolution. If we look at that budget, and we ignore funding for debt payments (and other obligatory spending), we can see that Kenya spent about 21 per cent of the budget on education, 21 per cent on infrastructure (including energy), and 16 per cent on security.

On the other hand, the allocation for health was about 8 per cent of the budget and 3 per cent for agriculture. Another 4 per cent went to water and irrigation.

If parliament believes that health and agriculture deserve a larger share of the national budget, that needs to be resolved at the Division of Revenue stage, because most health and agriculture spending is now carried out at county level.

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On the other hand, if the priority is education, infrastructure or raising the salaries of security personnel, the same logic applies, because those are national functions, and so national government needs a larger share of the budget. The Division of Revenue is in part about answering this very fundamental question about Kenya’s national priorities. 

Does the division of revenue reflect the need to manage Kenya’s large wage bill? This is a similar question to the first, but at the level of the structure of government, rather than specific sectors.

The Controller and the Salaries and Remuneration Commission have both raised the issue of the need to contain Kenya’s wage bill and make more funds available for investment. In thinking about the allocation of resources in 2012/13, the question parliament should ask is where the wage bill can be curbed and what the implications are for the overall allocation of resources.

For example, if the wage bill is high because of the large size of administrative headquarters within ministries, can staffing be reduced in particular sectors without affecting service quality?

If operational costs could be more readily reduced in education than in health (or vice versa), that would have implications for the division of revenue. Parliament must also interrogate CRA’s estimates of the cost of running county institutions (Ksh48 billion, or $555 million) to ensure sustainability.

Assuming Parliament is happy with the underlying priorities, has each ministry properly divided its activities into devolved and non-devolved activities? The next big question, after agreeing on sector priorities, is to clarify exactly what each level of government is doing and how much it costs. This was the work of the Transition Authority, but it hasn’t been done. As far as I understand it, we are still in the dark in many sectors about what is supposed to be devolved.

Take roads. We know there are supposed to be national roads and county roads, but which ones are which? If we look at the 2012/13 budget, we might logically think that the roads managed by the Kenya National Highway Authority are national roads, and the urban and rural roads managed by other authorities are county roads.

If that were true, we would expect roughly 70 per cent of the roads development budget to stay with national government, and 30 per cent to go to counties.

Two questions: Is that a correct interpretation of “national” and “county” roads? And does the budget reflect that split in funding? For every sector, parliament must ask the same questions.

Putting debt payment back into the picture, is government policy tending to inflate the debt over time in a way that reduces funding available for sharing with counties? National policies that rely on heavy borrowing for infrastructure have the effect of reducing the funds available for “sharing” with counties, because debt payments are obligatory and crowd out other spending.

These policies imply that certain national functions are more important than county functions. Parliament should debate that, and ask whether the government is doing enough to contain the size of the debt and ensure sufficient funding for other functions of government.

If parliament can ask these questions, the Division of Revenue process might achieve what it was intended to: A robust public debate about what the government currently does, and what we want it to do.

Jason Lakin is senior programme officer and research fellow with the International Budget Partnership. E-mail: [email protected]

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