Against the backdrop of a major cost of living crisis in Kenya, trade unions and left forces in the country have slammed the proposed Finance Bill 2023 presented by the government of President William Ruto.
The legislation has been introduced at a time when Kenya is facing a growing debt burden, with annual interest payments on domestic debt alone having surged to $5.09 billion this year, according to the chair of the Presidential Council of Economic Advisers, David Ndii.
At present, the value of Kenya’s public debt stands at 60% of its GDP. While giving assurances that the country would not default on its repayments, the Kenyan government delayed the payment of salaries to government workers in March, citing a cash crunch. Most government employees in counties — smaller geographical administrative units — had reportedly not been paid their salaries since January.
Delays in payment not only impacted salaries, which prompted warnings of major strike actions by unions of health workers and civil servants, but also the disbursements made to county governments for health and education spending.
Meanwhile, inflation stood at 9.2% in February and March, driven by high food prices amid the worst drought in the country in four decades. The Kenyan shilling also dropped to a new record low following two months of steady decline.
Workers bear the debt burden
The measures proposed in the Finance Bill, which have emerged in the wake of weeks of protests against these conditions, include raising the gross sales tax from one to three per cent, doubling the rate of Value Added Tax (VAT) applied on petroleum products from the existing eight per cent to 16%, and applying various excise duties.
Ruto had already announced his decision to scrap subsidies on fuel and maize, shortly after coming to office in 2022 at the directive of the International Monetary Fund (IMF). Fuel prices have now risen to a historic level in the country, with price hikes announced over the weekend after the complete lifting of the subsidy on fuel and kerosene.
“The Kenya Finance Bill 2023 is an unfair and regressive legislation that favors the wealthy and corporations at the expense of the working-class and poor majority.” the Communist Party of Kenya (CPK) said in a statement. “It fails to implement progressive taxation, placing an undue burden on those [who] can least afford it while failing to adequately tax the wealthy”.
The government purports to use the revenue raised to finance a Sh3.6 trillion budget, out of which Sh700 billion will be through further loans.
“This money is only going to be used to finance auxiliary expenditure, instead of going to the people. The government is not going to provide social services, instead this money is going to provide hefty perks and to service illegitimate debts that have existed in this country since Independence,” CPK vice chairperson and national organizing secretary, Booker Ngesa Omole, told Peoples Dispatch.
“The Finance Bill is anti-people, and it seems that the drafters of the Bill seem to want to please the IMF and World Bank, in a way to justify liquidity for the next loan agreement that the government is preparing to secure in the coming months…it is to show that they can collect money from the majority of the people — the poor and the working class,” Ngesa Omole added.
The Finance Bill seeks to introduce a statutory deduction of three per cent of workers’ earnings into the National Housing Development Fund, contributions to which were previously supposed to be voluntary.
While the provision’s stated purpose is to provide access to affordable housing, Omole stressed that it is not really affordable: “even if a worker contributes the required amount, they will never qualify for affordable housing.” People who fail to qualify will not only not have access to affordable housing, but they will also only be reimbursed for their contributions seven years later.
At the same time, “the government is very quiet on corporate tax…this is to protect capital, instead of the people, while also introducing another layer of taxation. The status quo of the hegemony of capital over labor continues.”
Moreover, Omole added that the Bill contained no mention of a land tax. Instead, “property owners will simply transfer the VAT to tenants, who are mainly poor workers. The property tax that was meant to be introduced was to be mainly implemented on people who own idle tracts of land, but this was not mentioned in the Bill.”
At a time when 5.4 million people in the country are projected to be facing life-threatening food insecurity amid a severe drought, the Bill also does not make mention of famine relief or tax relief for workers, Omole said.
Unions reject government’s ‘raid’ on wages
Earlier this month, public sector trade unions had called upon Parliament to reject the proposed provisions of the Bill, stating that workers’ representatives had not been consulted on any of the levies included, which constituted a violation of the Constitution and relevant enabling legislation.
The unions — which included the Kenya Universities Staff Union (KUSU), the Kenya Medical Pharmacy and Dentistry Practitioners Union (KMPDU), and the Kenya Union of Domestic Hotels, Educational Institutions, Hospitals, and Allied Workers (Kudeiha) – also called upon the government to reduce taxes imposed on workers and raised the longstanding demand to expedite negotiations to implement all pending Collective Bargaining Agreements (CBAs) to avert industrial action.
According to KUSU secretary general Charles Mkhwaya, the bill would see the total deductions from employees’ monthly salaries go up to 52%, given existing statutory deductions towards the National Health Insurance Fund (NHIF) and the National Social Security Fund (NSSF), among others.
“This overtaxation is going on unabated despite the fact that an employee’s salary is protected by law and that any deduction there to can only be done by mutual consent or through negotiation,” Mkhwaya said during a press conference on May 7.
Not only would statutory deductions impact the salaries that workers would be able to take home, this remaining amount would again be subjected to 16% VAT, he emphasized.
“The proposed Finance Bill [is] a way that the workers are consistently being pushed into poverty, against their will…We are calling upon the government to use the existing mechanisms of social dialogue to engage workers so that we can agree on how this economy, that is run by workers, can effectively serve the meet and serve the needs of the workers of this country.” KMPDU national treasurer, Dr. Mercy Nabwire, told NTV Kenya.
“We are not going to accept this raid on our meager earnings, we are staring at poverty, even as we face these harsh economic times.”
Kenyan workers are bearing the brunt of rising prices, austerity measures, and statutory deductions all while their wages have been subjected to constraints for years.
This is also important to understand the broader changes in favor of neoliberalization that have taken place in Kenya which are not confined to a particular presidential term, even as governments try to shift the blame to one another, including for rising debt.
“Kenya is under a neocolonial system, the problem is more systemic than individual. We may have some individuals changing positions in government, but the policies remain more or less the same,” Omole said. This is also evidenced by the fact that Ruto was himself the deputy president of the Uhuru Kenyatta administration prior to the 2022 election: “President Ruto himself was a stakeholder”.
He added, “The debts themselves have been growing since the [Daniel Arap] Moi dictatorship”, under whom Ruto held a ministerial position, “We have been telling this government that instead of taxing the Kenyan people, the government must struggle against these illegitimate debts, some of which belonged to the British colonial era.”
“If indeed there are people who signed anti-people loans in the previous regime, the current Constitution empowers the President to start the process to renegotiate these loans, or even to hold the people in positions of power responsible. Their wealth should be expropriated to fill in what they call the budget hole …instead of these debts and taxes being imposed upon the Kenyan people.”
The ruling party has indicated that it has no intentions to budge on the proposed Bill.
Nevertheless, the CPK has continued to push for changes to the existing bill— including progressive taxation, increasing the inheritance tax and the corporate tax rate, and the exemption of basic commodities such as kerosene from taxation— in pursuit of a redistributive agenda that lifts the burden off of poor and working class people in the country.