Why It’s Impossible to Read the Budget Based on New Laws

Business Daily (Nairobi)

Mohamed Wehliye

3 June 2011

opinion

It is practically not possible to announce the Budget now in accordance with the new law without providing money for county governments. The current crisis stems from wanting to subject a budgeting process that is meant to cater for two levels of government (national and counties) to one level of government (the existing government). This would be like hammering square pegs into round holes.

Everyone who thinks the Finance minister has violated the law, including those who have gone to court are basing their argument on Article 221 of the new Constitution, which states “At least two months before the end of each financial year, the Cabinet Secretary responsible for finance shall submit to the National Assembly estimates of the revenue and expenditure of the national government for the next financial year to be tabled in the National Assembly.” This Article further requires that the estimates should include estimates for expenditure from the Equalisation Fund. There are two reasons why this Article will be difficult to implement under the current government structure.

First, in Chapter 12 of the new Constitution, budgeting takes a logical process that starts with the mobilisation of funds, then allocation and then comes the fiscal planning bit. Part three of this chapter (revenue raising powers) deals with mobilisation followed by part four (revenue allocation) which stipulates ways in which resources should be shared and then we go on to part five (budgets and spending), which deals with fiscal planning. It is difficult to implement some of the parts and suspend others without compromising the whole process.

These “parts” supplement each other and can’t be seen on a stand alone basis. As Gichugu MP Martha Karua put it before, they have to be read conjunctively and not disjunctively. One of the basics parts of the process as specified in the Constitution, is to mobilise all funds into a Consolidation Fund. This is the basket of money that belongs to Kenya and not to any government tier. When the monies are allocated and disbursed to governments (national and counties), the national government’s share remains in the Consolidated Fund, and the county funds move into Revenue Funds.

That is when the National Assembly comes in to pass appropriations for the national government’s portion of the Consolidated Fund. The appropriation of each tier of government’s budget can, therefore, only take place when they get the Consolidated Fund and Revenue Fund belonging to that tier of government. The national government referred to in this Article, in my opinion, is not the national government as we know it today, but rather the upper tier of a two-tier government system created under the new laws. It is only logical then that it has first to be allocated funds through an approved revenue allocation mechanism before it can budget for the same. It cannot estimate for what it does not fully own.

Practical sense

It is, therefore, practically impossible to enforce Article 221 without, at the same time, implementing Article 218, which also requires that at least two months before the end of each financial year, the introduction in parliament of a division of revenue Bill, which shall divide revenue raised by the national government among the national and county levels of government in accordance with the Constitution. In fact, in every practical sense the revenue Bill would have to be submitted to parliament at the same time or even before the budget estimates.

If, however, one were to equate the national government referred to in Article 221 to the country as was under the old Constitution, it means we are still dealing with the old budget and we cannot, therefore, subject it to the new process. Whichever way you look at it MPs can’t have its cake and eat it.

Second, this Article requires that the Cabinet Secretary includes estimates for expenditure from the Equalisation Fund. The question is, what exactly would this fund be equalising given that no revenue allocation has taken place? Before you equalise, you have to allocate and then know where the imbalances are. It was, therefore, surprising to see the Speaker rule the other day that Treasury puts the Equalisation Fund in place.

The design of any Equalisation Fund has to be considered as one part of a complete system of inter-governmental relations and needs to take into account not only assignment of expenditure responsibilities between the two levels of government but also between the county governments. The Equalisation Fund will be used to address vertical imbalances between national and county governments and horizontal imbalances between counties in provision of basic services such as water, roads, health and electricity.

To achieve these objectives, the Equalisation Fund has to be considered in the context of the expenditure and revenue components of an overall fiscal decentralisation policy, which currently does not exist. Furthermore, the Commission on Revenue Allocation will first have to define and determine “marginalised areas’ and then design a formula on how monies in this fund would be shared. So how can you possibly set up an Equalisation Fund without allocating funds to counties and determining where the imbalances exist? Any Article, therefore, that makes references to the Equalisation Fund such as Article 221 cannot be effected in the current circumstances unless we want to budget for an idle fund that would have to wait for the formation of the counties for it to be operationalised.

Let us look at the practical aspects of things and not create a war between technicality and democracy. We have many Vision 2030 goals to meet. We need to quickly implement the Budget to meet those goals. For any budget to have its desired impact there should be enough time for its implementation. Any lost time means we will miss both our targets. Allow the Finance minister to read the Budget, please.

Wehliye is vice president, financial risk management, Riyad Bank, Saudi Arabia.

AllAfrica – All the Time