Stalemate over teachers’ pay must end soon to avoid economic knocks

Students return to their homes on September 19, 2015, a day after the government ordered that all public and private schools be closed indefinitely because of the ongoing teachers' strike. PHOTO | JOSEPH KANYI | NATION MEDIA GROUP 

In Summary

• When you tax the population, you must re-inject the money into the economy to stimulate consumption with the consequent multiplier effect on output.
• Taxes injected into the economy are supposed to stimulate a multiplier effect, especially when a good proportion of the money is invested in infrastructure.
• What reduces the public appeal of the economic argument even further are the perceptions about high waste and corruption in the public sector.

By JAINDI KISERO
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If the strike by teachers does not end soon, it will not be long before we start feeling its impact on the macro economy.

The commercial banking sector remains especially vulnerable because billions of shillings from the payroll of the Teachers Service Commission flow into banks to repay loans.

If the strike goes on for another month, banks may have to begin to make provisions for non-performing loans.

Clearly, a prolonged strike by public school teachers will have far-reaching ramifications for the financial stability of our financial system.

Secondly, with billions of shillings in normal salaries withheld and therefore not flowing, a prolonged strike may introduce a fiscal drag in the macro economy.

When you tax the population, you must re-inject the money into the economy to stimulate consumption with the consequent multiplier effect on output.

We must not forget that the Teachers Service Commission is the second largest taxpayer in the country. When you force it into a situation where it has to withhold salaries and therefore stop remitting taxes to the Kenya Revenue Authority, you will have withdrawn Sh40 billion of government expenditure from the economy.

Taxes injected into the economy are supposed to stimulate a multiplier effect, especially when a good proportion of the money is invested in infrastructure.

I must say that I am not a supporter of protracted work boycotts. An economy with a reputation for being prone to long, disruptive strikes cannot attract investors.

I also believe that a rigid industrial relations system prone to work stoppages and trade union militancy is more harmful to private enterprise and capitalism than price controls and high tariffs.

I hold the view that for capital accumulation to thrive, a country must build an industrial relations system that commits parties to automatic negotiations whenever disputes arise.

Will the government pay teachers? Sina habari.

Is President Kenyatta insincere in arguing that the government is currently in no financial position to meet the demands of the teachers?

What is clear is that the argument against an abrupt upsurge in the public wage bill makes sound economics. We have a massive public wage bill problem, but economic argument is difficult to sell in the context of the high salaries for MPs, senators, MCAs, judges, principal secretaries, and members of constitutional commissions.

If you look at all taxpayer-funded wages, this tiny enclave of highly paid civil servants represent a labour aristocracy within the public sector.

What reduces the public appeal of the economic argument even further are the perceptions about high waste and corruption in the public sector.

Where is the truth in all this? My hope is that when this strike is over and temperatures have cooled down, we will start a genuine discussion about how economic growth is being hindered by a huge wage bill and a mounting debt servicing burden.

The plain truth is that together, wages and interest on debt currently take up more than a half of our budget. They are squeezing out public expenditure on both the operation and maintenance of capital investment.

We are running one of the largest budget deficits in the country’s history — at nearly 9 per cent. Even more worrying is the proliferation of big-spending departments such as constitutional commissions, county governments, and county assemblies.

In the past 10 years, the budgets for Parliament and the Judiciary have expanded astronomically. The mindsets of our leaders is part of the problem.

The incumbent elite — the governors, senators, MPs, and members of county assemblies — view the government as a source of inexhaustible largesse.

That is why we are willing to contemplate that absolute nonsense about paying pension to former councillors.

Yet we do not want to admit that things have gone wrong. With the Treasury bill rate now at 15 per cent, we are close to what we witnessed in the post-Goldenberg period.

Remember that real returns on the three-month instrument averaged over 15 per cent during the 1993-1998 period, reaching 40 per cent in late 1994. At 10 per cent of GDP, our current account deficit is the largest ever.