Why the state can't afford to give every Kenyan money

What you need to know:

  • The idea of a Universal Basic Income is not new as a policy initiative, but it is under greater inquiry among policy scholars.
  • This works out to a monthly average of Sh4,600 on behalf of each citizen for all public services and salaries at county and national government.
  • Under discretionary spending, our Kenyan recipient of universal income would remain with Sh43,000 to be spent on education services, security, agriculture, infrastructure, payment of doctors, the courts and Parliament for this year

The month of June 2016 saw some leading democracies define themselves by holding referendums on issues connected to economic policy.

Before Brexit, citizens of Switzerland went to the voting booth in a referendum to determine public support for a proposal on Guaranteed Basic Income.

The result of the plebiscite on June 5, 2016 was a vote against the proposal for Universal Basic Income. Had it succeeded, it would have led to state payments of up to $30,000 and $7,500 per year for each adult and child, respectively.

The funds would have been paid from revenues collected by the state and would be distributed to everyone monthly, irrespective of their income level.

The idea of a Universal Basic Income is not new as a policy initiative, but is under greater inquiry among policy scholars. Its proponents consider it necessary, as a guarantee of basic income for every citizen, to defeat acute poverty while reducing inequality among citizens.

Few developing countries have considered implementation of a Universal Basic Income but supporters of the idea think that it has merits in every country. It is useful to explore what the implications of a Universal Basic Income in Kenya would be and interrogate its policy fitness for Kenya’s budget conditions.

THE SWISS EXAMPLE

This direct payment would, in essence, be redistribution from all collected taxes. It would have to be paid irrespective of the income levels or employment status of Kenyan citizens. It is an opportunity to re-channel taxes from public to private spending and is therefore attractive as a means for reducing the growth of government.  

The Swiss referendum was not predicated on the argument for increased taxation and therefore implied that it would be paid for from revenues raised, without adjusting tax rates. By implication, the decision was whether or not to reduce direct government spending through transfers to taxpayers.

Coming down to Kenya’s budget numbers for the financial year that begun on July 01, 2016, total government spending at both county and national level adds up to about Sh2.3 trillion. This means that national and county governments together spend Sh200 billion per month towards all public services and payments.

Broken further, this works out to a monthly average of Sh4,600 on behalf of each citizen for all public services and salaries in county and national government.

If we were to become fanciful, this means that government owes to every Kenyan either Sh55,200 per year in a cheque, or the services and goods of an equivalent amount.

'SOME HARD THINKING'

One way of judging the quality of services received is to ask whether each individual would spend his or her monthly share in the same way the government hopes to do.

However, the Constitution prescribes a minimum level of payments that must be made through Consolidated Fund Services (CFS). In this basket of non-discretionary items is the repayment of public debt, salaries of constitutional office holders, pensions of retired public sector workers and subscription fees to international organisations.

The Constitution requires that these be paid before any other spending.

If every Kenyan were to claim the direct income of Sh55,200 based on all spending required for the year, they would have to pay back to government about Sh12,275 to cover for the items in the Consolidated Fund Services, divided into Sh10,800 for repaying the public debt with another Sh1,294 each for paying the pensions of retired public sector workers.

This reasoning shows that nearly one quarter of the spending is already spoken for, through public debt repayments and pensions. Therefore, public budgets are already tight and so to contemplate Universal Basic Income would require some hard thinking about how to reduce waste and close some public offices.

Noting also the fast growth in public debt and the huge redemption expected in the next couple of years, the amount available in discretionary spending would shrink some more.

ELECTRIFICATION OF HUTS

Under discretionary spending, our Kenyan recipient of universal income would remain with Sh43,000 to be spent on education services, security, agriculture, infrastructure, payment of doctors, the courts and Parliament for this year.

If we consider education and health services indispensable, then each Kenyan would have to cede to those departments and ministries another Sh16,000. That means that a balance of Sh27,000 would be available to pay for all other services outside education and health.

This thought experiment shows that a Universal Basic Income for Kenya’s level of citizen incomes would only send meaningful sums to the citizen after dismantling large parts of the state, including especially popular programmes of dubious value, such as electrification of huts with a single bulb, the National Youth Service and fertiliser subsidies that are loopholes for “instantaneous pilferage”.

The dismantling is unlikely, because the public bureaucracy that benefits from bloated government and state departments paying favoured consultants defends this waste under the guise of serving the public interest.

Any policy, however effective, that requires a reduction of state involvement is a danger to them. Ask those fast-talking consultants who undertook to modernise the NYS.

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame

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