We are just over a month into the new administration under President William Ruto. At this early stage we can see that some things have changed, others, not so much.
One definite change is that our new president’s speeches have been a lot more policy-heavy than perhaps we had become accustomed to. His inauguration speech mentioned the scaling up of the allocation to the judiciary, committed to the appointing of the six judges of the Court of Appeal (which he immediately did), made the Inspector-General of the police the accounting officer (again, done), as well as mentioning fuel subsidies, fertilizer costs, youth unemployment, financial inclusion and a number of other important policy aspects.
But it is the president’s speech during the inauguration of the 13th Parliament that I wish to draw attention to. It was just as policy-heavy, spending little time on the election just concluded, and more time on what the president’s legislative agenda would be. This is very important. Past presidents who have sailed into State House with a legislative super-majority perhaps may not have realized the opportunity that the times had afforded them. The current president seems fully aware that his ambitious legislative agenda will need to be approved by a parliament in which his coalition does not have the super-majority of years gone by. The president presented his legislative goals to the bicameral parliament very early. I list some of the president’s stated goals below.
The president stated that under his administration, he is keen for agricultural productivity – of farmers, fishermen and herders – to rise “dramatically”. He also stated that parliament should do its duty by supporting the provision of land for affordable housing. Perhaps most memorably, he stated his intention to change the tax regime by taxing wealth, consumption, income, and trade – in that order. And he decried the land fragmentation that has been occasioned by Kenyans seeking and succeeding to purchase 50×100 plots for themselves.
Underlying each and every one of the issues that the president mentioned in the above paragraph is the vital and essential issue of land. Questions of its availability, its productivity, its cost and the alternative uses to which it may be put are unavoidable and inescapable as enablers to the attainment of the president’s agenda. As far as productivity is concerned, large tracts of productive land lie fallow and unused – “owned” by those who will not put it to use. The government will struggle to buy land for affordable housing – because land is far too expensive in precisely those areas where housing is so sorely needed. I have lived in a house in which the door to the shower could not fully be opened because at some point that door would knock the showerhead when you opened it. The price of land, dear reader, is in that shower-room. There are numerous apartment blocks in Nairobi in which if the bonnet of the car parked first is not nestling snugly under the stairway leading into the apartment, the gate simply will not close. The price of land, dear reader, is in that apartment’s parking lot – and elsewhere in the apartment, I’m sure. (Indeed, the price of land is so high that it has proven and will continue to prove to be an impediment to the improvement of the nation’s infrastructure; land compensation cost KSh33 billion during the construction of the standard gauge railway, for example.) And the land fragmentation that the president rightly regrets is a combination of both these factors: the fact that large tracts of land are unavailable to a public that would otherwise have put them to more productive use; and the fact that land prices are high and rising so that it is seen as a more durable asset in which to park family savings, such that smaller and smaller pieces of land have more and more value. In short, resolving the land problem in Kenya is now fundamental to any administration’s success. A day of reckoning must soon come, and it is better to get out in front of it.
The government will struggle to buy land for affordable housing – because land is far too expensive in precisely those areas where housing is so sorely needed.
There is a simple solution to each of these problems, although I must caveat this statement by saying that “simple” does not necessarily mean “easy”. Land is a natural resource; it is not manufactured by anyone. There exist schools of economic thought that state that the taxation of such natural resources for the national benefit is the best way to realize their value on behalf of the people. Let us examine this thinking further by means of a thought experiment.
Imagine, for example, that there was a blanket tax rate on land of, say, KSh1,000 per acre per month, or KSh12,000 per annum.
(It would be important for such a new tax to be offset by a commensurate reduction in income tax, to stay within the president’s stated principle of taxing wealth first and income second-to-last.)
We shall now examine the effects of this tax for Family A which owns the quarter of an acre on which they have built their family residence. Such a tax would amount to KSh250 per month, or KSh3,000 per annum. In all likelihood, Family A would be able to pay it, even without offsetting it from income tax. But let us now examine the effects of this tax for Family B which owns 100 acres of land. Such a tax rate would amount to KSh100,000 per month, or KSh1.2 million per year. Given that – as earlier stated – this amount is to be offset from that family’s income tax, such a family would only be unwilling to pay this tax if they were not already farming the land, or in some other way making it produce at least the KSh1,000 (per acre per month) needed to pay the tax. In other words, only the owners of idle land (or, more fairly, the idle owners of productive land) would be disturbed by this change in the tax regime.
(It gets even more interesting when the tax rate is a flat percentage based on the value of the land. Let us say the rate is 2 per cent per annum. A parcel of land valued at KSh1 million would attract an annual tax of KSh20,000. A parcel valued at KSh100 million would attract a rate of KSh2 million per annum. This is even more fair and just because an empty lot in Nairobi city centre is losing us far more productivity than an acre of land in Samburu. This is what is known in economics as a land-value tax, and it is the holy grail of taxation policy. But I digress.
Upon the introduction of a land tax, in very short order, one of three things would happen. Families like Family B could sell their land. The immediate availability of large tracts of land for sale in order to avoid the tax would have the economically salubrious effect of depressing the price of land quite quickly, availing it for careful planning. We would have to take care to avoid the mistakes of the past, where planning for the use of this most important of resources has been largely non-existent and land allocation has fallen prey to corruption. Even where newly-available land is to be bought by a new owner, it should be carefully allocated to those who would actually farm it productively, and such allocations should not be corrupt. Japan achieved this by having these decisions made by local land committees, and this fair redistribution of land kicked off that nation’s economic take-off.
Alternatively, Family B could lease the land for the tax rate or slightly more. Although theoretical, a land lease rate of KSh1,000 per acre per month is quite fair and would enable the land to be put to use by a good agriculturalist – the youthful unemployed of our day. (Such an approach while helpful, would not be a silver bullet, and would need to be allied with extension services, capital provision, assistance with market development, and other support.) This would at once help to reduce unemployment – the single most important economic problem of our time – and attain the target of increasing the national agricultural productivity that the president talked about in his speech.
An empty lot in Nairobi city centre is losing us far more productivity than an acre of land in Samburu.
Lastly, Family B could put the land to the uses to which it should have been put all along, in order to generate the KSh1,000 per month required to pay the tax – and keep the land.
All of these outcomes – provided they are correctly carried out – are beneficial. In China, for example, grain output leapt by 70 per cent in the decade after land redistribution. However, to ring-fence and insulate these beneficial outcomes from typical Kenyan venality, the land tax must be inescapable. It may be necessary to make it public information whether the tax for a piece of land has been paid or not. Further, during land redistribution the public should be involved, as was the case in Japan. In addition, the institutions in charge of these processes should be staffed by individuals who are above reproach. It is also important to note that a certain reading of Article 209 of our Constitution could conceivably prevent the national government from imposing such a land tax. Sound judicial advice should therefore be sought before proceeding with these changes.
Dear Mr President: please tax the land, and not your people.