The Division of Revenue Bill (DoRB), 2014 is at the top of the agenda for parliament in their next couple of sittings, and as such, it is in form to explore its implications.
This bill is the first step in our annual budgeting cycle, and is particularly important as it should work to ensure the success of devolution through adequate allocations to county governments. The revenue is based on the government’s 2011/12 audited revenue, which comes to KES 682.1 billion.
This debate, as with many others, has become overtaken by debates fuelled by supremacy battles between national and county governments. Since the last election, there have been unending infighting, with each level of government wanting to show the other as less relevant, and with county officials claiming that the national governments wants to kill devolution.
What this debate should be about, really, is what Kenyans want. It should be about our needs and wants as a country, then, because our constitution gives both levels of government different mandates, we should allocate the revenue to each level based on our priorities and each level’s respective mandate when it comes to these priorities. It’s not about whether we love county government and hate national government, or vice versa, it’s about what we are trying to accomplish as a country to get us to middle-income status and beyond.
Three bodies have proposed allocations of revenue – the National Treasury (Treasury), the Commission on Revenue Allocation (CRA) and the Intergovernmental Budget and Economic Council (IBEC).
The IBEC recommends that county governments receive KES 238 billion. The CRA recommends KES 279.2 billion and the Treasury KES 221.2 billion, and this is worrying. Both the CRA and Treasury are affiliated to government, yet they give widely varying estimates, signalling that their basis for the figure is different. Treasury based its figure on the cost of devolution as approved in the DoRB 2013, which is KES 190 billion, while the CRA based its figure on the 2014/15 estimates for ministries (from the Estimate of Recurrent and Development Expenditure, 2012/13), which is 230.8 billion. The difference in bases causes the huge variance, and while the Treasury tries to explain itself, it is imperative that they agree on the best approach for the costing of devolved functions so as to avoid confusion, as well as to ensure that counties receive enough funds to perform their functions.
The fact that the 2012/13 budget greatly informs the DoRB 2014 also raises important questions. Should a budget drawn before devolution was implemented be used in the estimation of a budget supposed to support devolution? The allocations to county functions such as health, water, agriculture and housing are based on the 2012/13 budget, only adjusted for inflation and additional costs of staffing county governments. This makes it feel like not much thought has been put into devolution since it was conceptualized and implemented.
Not much is offered in the way of data when it comes to the cost of running counties, making it difficult for parliament and the general public to contribute in terms of oversight. The cost of remuneration and administration of counties has increased from KES 13.6 billion in the 2013 budget to KES 30.2 billion in the DoRB 2014, and an extra KES 4.2 billion has been transferred from national to county governments in lieu of pensions. Given the high wage bill (which is 13% of GDP, higher than the Treasury target of 8%) one can only wonder whether there is a duplication of effort and talent at both government levels. Are the new structures too bulky? Are they overstaffed?
As for the KES 7.1 billion that is to be transferred from national to county governments transferred from the national government to county governments as an adjustment due to the expected reduction in administration expenses for national government and the corresponding increase in administration expenses at county level due to transfer of devolved functions, it would be useful to include the progress of this transfer so as to justify it.
Treasury provides a conditional allocation of KES 13.9 billion (made up mainly of loans and grants), down from KES 16.6 billion in 2013/14. However, this amount cannot be transferred to the county government due to a number of reasons, such as legal and cost implications and existing finance and implementation structures, hence will be budgeted and managed by the National government in 2014/15. This is perfectly in order, however Treasury needs to clarify on the exact areas where these projects will be carried out, as well as their individual costs to avoid shady expenditure masquerading under development.
Treasury also allocates Ksh 7.3 billion for rural electrification to county governments. However, the transfer of this function to county governments is pending hence the function will remain with the national government for the time being. It would be useful to make public the manner in which all projects under the conditional allocation are to be implemented to aid in keeping the government accountable.
Article 203 (1) of the constitution provides criteria for revenue allocation, such as national interest, public debt and other national obligations, emergencies, equalization fund and county government allocations, with the remainder available to national government.
Under national interest, there is an increase of KES 17.2 billion on KES 91 billion, allocated to national strategic interventions. These come to almost a quarter of the budget dedicated to national interests (KES 108 billion out of KES 478 billion) yet not much is offered in way of explanation. What are these national strategic interventions, and what is their purpose?
Public debt, as expected, is on the rise. It has increased by KES 32.9 billion to KES 414.4 billion. The bulk of this (85.3%) is taken up by public debt, which has increased 6.7% from KES 331.2 billion. Debt repayment plus pensions, constitutional salaries and others, are also known as Consolidated Fund Services (CFS), whose primary dedication is debt repayment. It is a compulsory expense, and it has to be paid before other expenses, meaning that as CFS increases, less is left for our other needs. We need to manage our debt to ensure that enough revenue is left for devolution.
Treasury asserts that it is too early to measure the fiscal capacity and efficiency of county governments – that is, potential revenues that can be generated from the tax bases assigned to the counties when a standard average level of effort is applied to those tax bases. Thus, no official data on this is provided and the criterion is not taken into consideration. While this is true – a year may be too early – already, there is reportedly wastage at county level, and I feel that this is an area to watch when it comes to parliamentary and public debate.
The Equalization Fund, with a proposed allocation of KES 3.4 billion in 2014/15, is to be used to finance development programmes that aim to reduce regional disparities among counties. This is another key area to watch as no particular formula is given to guide how these funds will be split, and the programmes to be pursued are not defined.
Other than these issues raised, the DoRB seems reasonable. However, it raises a few questions.
In line with our priorities as a nation, one of which is achieving middle-income status, are we investing enough in areas that will expand our economy, such as trade and industrialization? Are we spending enough on factors that are important to living a dignified life, such as health, water and sanitation, housing and agriculture relative to security and education, which comprise about 30% of the proposed revenue allocation? Are we spending enough on the services the national and county government should provide, relative to the cost of provision of these services (recurrent versus development expenditure)?
We should aim to answer these questions in upcoming days as we debate, and possibly amend this bill.
The Division of Revenue Bill, 2014, by The National Treasury, Retrieved from http://www.treasury.go.ke/index.php/resource-center/doc_download/690-the-division-of-revenue-bill-2014
The County Allocation of Revenue Bill, 2014, by The National Treasury, Retrieved from http://www.treasury.go.ke/index.php/resource-center/doc_download/689-the-county-allocation-of-revenue-bill-2014