National debate on division of revenue or semi-coherent ramblings?

Saturday December 14 2013

By Jason Lakin

A a few days after the Commission on Revenue Allocation announced its new recommendations for revenue sharing, the governor of Wajir alleged that the CRA proposal for counties (Ksh279 billion) was too low. It should, he claimed, be at least Ksh310 billion. And so the fight begins.

And the poor quality media coverage.

The Business Daily story that carried the CRA recommendations was mathematically incomprehensible. The splashy headline declared that CRA chairman Micah “Cheserem slashes share of revenue for counties.” The first sentence of the article announced that county budgets will be “sliced.”

Now, these are two different things. The headline is about the percentage of the total budget that counties will get (versus the share national government will keep).

But the county share can go down without county budgets being “sliced.” If the total budget for national government is rising while counties are staying the same or growing more slowly, the county share will still go down.

And in fact, the article reports that CRA recommends that counties receive Ksh279 billion this year. This is more than they received last year (Ksh210 billion) and more than the CRA recommended last year (Ksh231 billion). A Ksh69 billion increase hardly constitutes “slicing.”

If the absolute figure is not being sliced, what about the county share? There are two ways to calculate the share. One is to use the base year that CRA uses (as per the Constitution), which compares what counties got against the last audited and approved financial accounts of national government revenues.

These audited accounts tend to delay, so last year, the most recent accounts available were from 2010/11. This year, the most recent accounts are from 2011/12.

If we assess the county share using these figures, we have to compare what counties got last year (Ksh210 billion out of Ksh608 billion) with what CRA is recommending this year (Ksh279 billion out of Ksh682 billion). If we do that, we see a sharp increase in the county share from about 35 per cent to 41 per cent.

There is a second way to calculate the share, which is to look not at the audited accounts, but at the shareable revenue in the current budget year.

In 2013/14, we know that the total shareable revenues are Ksh920 billion (see the Division of Revenue Act 2013). However, we do not know the figures for 2014/15.

The Business Daily article tells us two things: First, CRA estimates that the actual figures for 2013/14 are going to be lower than the Division of Revenue Act (Ksh863 instead of Ksh920 billion). CRA also estimates the figures for 2014/15 to be Ksh998 billion.

If we use 920 and 998 and compare the share between this year and next year, counties got 23 per cent last year and will get 28 per cent this year. If we use instead the figures in the article of 863 and 998, counties got 24 per cent last year and will get 28 per cent this year.

Summing up, there is no possible interpretation of the numbers that supports either “slicing” or “slashing” of the county share. So how did Business Daily get it wrong?

The confusion seems to have been generated by a table (ES2) that CRA provided in its recommendations that shows that the proposed Ksh279 billion is a much smaller share of 2012/13 revenues than 2011/12, and a smaller share still of 2013/14 revenues than of 2012/13.

The table is simply intended to show that using old audited figures tends to make it look like counties are getting a larger share than they really are in a given year.

It does not constitute slashing. And the article misunderstands this table as CRA arguing for a static figure for counties for the period 2011-2015, which is nonsense. There were no counties in 2011/12 or 2012/13, and, as we already saw here, the figure went up between 2013/14 and 2014/15.

In the confusion over these figures, which unfortunately mirrors the ill-informed media coverage of last year’s Division of Revenue, key questions are not being asked. What questions are those?

Why did the CRA recommendation go up from Ksh231 billion last year to Ksh279 billion this year? Is this just an inflation adjustment, or did the Commission do further research into the actual costs of providing devolved services?

Recall that, in the absence of a deeper analysis by the Transition Authority, estimates of the cost of devolved services have been based on a rough analysis conducted by Treasury for the 2012/13 budget. Has CRA given us anything better than that this year?

The Division of Revenue should be a national debate about the value Kenyans put on services provided by the two levels of government. Instead, it continues to be a confused assembly of semi-coherent ramblings. The media must do better.

Dr Jason Lakin is a senior programme officer and research fellow at the International Budget Partnership.

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