BBI needs better persuasion, not more coercion

With a majority of county assemblies having approved the Constitutional Amendment Bill, Kenya’s Building Bridges Initiative (BBI) is now traversing the country with a popular referendum in the offing. 

The politics of BBI, unfortunately, tells us that coercion beats persuasion. For now, its technical legality and democratic legitimacy will still be tested, by the courts, then, by the people. 

Yet, with promises of 35 per cent equitable revenue share for counties, five per cent of that 35 per cent for county wards and car grants for Members of the County Assembly (MCAs), plus promises of more representation, we forget that BBI also offers a serious “wake-up” call on our fiscal management.

Because MCAs, and Parliament later, are not designed by our voter behaviour and choices to think differently, what must be at the back of our minds as the referendum approaches?  

Placing losses in perspective

Here is an arguable perspective -- open for and subject to debate. It is about numbers, and begins with the startling recent vernacular admission by President Uhuru Kenyatta that Kenya loses Sh2 billion a day. We must place this astounding loss in proper perspective. We will do this by converting our fiscal data in Kenya shillings into a daily calendar year equivalent.

In the 2019/20 financial year, Kenya collected 4.8 billion a day in revenue, of which 3.8 billion was taxes, and spent seven billion a day. This translated into a daily spending deficit of 2.2 billion. 

Current 2020/21 estimates show five billion a day in revenue with 3.9 billion in taxes, and daily spend at 7.9 billion. This translates into a daily deficit of 2.9 billion, which will require Eurobond 4. Two billion a day equals 40 per cent revenue, more than half the tax take or a quarter to a fifth of our expenditure, including borrowing.

Now, as 2021/22 – the ninth and final year of the Jubilee Administration – looms, BBI is the focus. The National Treasury projects total revenue at 5.6 billion a day, including 4.6 billion in taxes, against a spend of 8.1 billion, leaving a daily deficit of 2.7 billion.   

In context, 5.7 trillion growth in debt in eight years to June 2021 will represent the gap between spending 17.2 trillion and collecting 11.5 trillion. The 7.2 trillion last December will be 7.5 trillion in June.

Back to this 2021/22 (and BBI) moment, and good news. Income tax is estimated at 2.3 billion a day, VAT at 1.3 billion and customs and excise at a billion.

The Kenya Revenue Authority admits that Kenya collects 82 per cent of potential corporate income tax, 66 per cent of personal income tax, 55 per cent of VAT, 64 per cent of customs and 85 per cent of excise. Its calculus says this is 6.6 per cent of GDP, which is almost two billion a day. 

Further, the National Treasury confesses that we offer roughly 500 billion a year, or 1.3 billion a day, in tax reliefs and incentives to "investors and other nice people". We call these tax expenditures.

If we heroically assume no double counting between the tax gap and tax expenditures, this adds to 3.3 billion a day in tax potential in our current economic state.

On spending, our debt forces us to do 1.5 billion a day on domestic and foreign interest payments.  Add 1.4 billion each on the wage bill and operations and maintenance (service delivery) and 1.7 billion on development. 

Counties will get 1.1 billion daily, and spend three-quarters, or 800 million, on recurrent items, leaving 300 million for development. National government will spend 1.7 billion a day on the same. Does national development trump counties by a factor of plus-five?  Good BBI question.

Back to the two billion daily loss. It exceeds debt interest, wage bill and service delivery provisions and equals the sum total of national and county development money. Which of these line items are stolen?

Imagine that Kenya could collect nine billion a day, spend eight billion, with a bloated Parliament, and create a billion-shilling surplus that doubles the county allocation within the 35 per cent framework.

Consider a growing county-led economy with more money pushing daily revenue to 10-12 billion on the good governance precondition of strategic prioritisation of projects, focused policy execution and service delivery, stringent fiscal discipline, and full public participation and accountability. 

Maybe BBI might save us from the easy choice to steal 2 billion a day and then borrow it back.

Numbers never lie, but BBI is looking at the wrong numbers.  It would be interesting to establish what MCAs explored in their decision taking.  More to the point, it is not beyond the wit of (wo)man to translate this indicative macro-view into practical micro-messages.

BBI might have sold better through the persuasion, not tyranny of numbers. 

The writer is a management consultant. [email protected]