KATIBA CORNER

Understanding Supreme Court case about Division of Revenue Act

The Chief Justice gave an additional judgment comparing what has been achieved poorly with what the Constitution envisaged.

In Summary

• In 2019, the National Assembly and the Senate could not agree on the allocation of money between the national government and the counties. 

• These issues came before the Supreme Court, which last month gave a good judgment that produced a sensible solution for the main issues.

Governors and senators march to the Supreme Court to seek judicial intervention in interpreting Division of Revenue Bill 2019 on July 15, 2019
Governors and senators march to the Supreme Court to seek judicial intervention in interpreting Division of Revenue Bill 2019 on July 15, 2019
Image: FILE

You may remember a terrible muddle in the middle of last year about passing key laws on national finance.

The National Assembly and the Senate could not agree on the allocation of money between the national government and the counties. Yet the National Assembly passed another law to authorise national public expenditure for the year — even though it did not know how much there was to allocate.

These issues came before the Supreme Court, which last month gave a good judgment that produced a sensible solution for the main issues. The Chief Justice gave an additional judgment comparing what has been achieved poorly with what the Constitution envisaged. Justice Njoki Ndung’u, who seems committed to minimising the contribution of the courts to government accountability, disagreed on two points with her colleagues.

DEMOCRACY AND FINANCE

An important principle of modern government — fought for over the centuries against monarchs who thought that they owned their countries and their resources — is that all public expenditure, and all taxes, must be approved by the people’s representatives: Their MPs.

An underlying assumption is that Parliament will not just do what the government wants (or modern governments would be no better controlled than mediaeval monarchs).

Our Constitution was designed to improve the transparency and democracy aspects of public finance processes. A timetable is designed to give plenty of time for the government to plan its expenditure for the following year, and for the public and MPs to understand and debate what is proposed. And MPs are given much more power than in the past to change what the Treasury (government) proposes.

Especially where county finance is concerned, the process involves an expert, technical institution (the Commission on Revenue Allocation), the people’s main representatives (the National Assembly), a democratic institution created to protect the interests of the county governments (the Senate), the government’s own experts on our finances (the Treasury), and the people.

To make this work, everyone element must play their part: Prepared to make necessary compromises, taking the effort to understand the issues, and working in the interests of the nation (which does not mean the government).

THE CASE

With the lawyers, the Supreme Court whittled down a huge number of issues to a few key ones. One had actually been decided by the Court in 2013: That the law dividing the national revenue between national and county levels of government needed the agreement of the Senate. The National Assembly argued that the Supreme Court had been wrong then; the Court stuck to its guns.

This meant that eventually, the two Houses must reach AN agreement. In reality, they had both, perhaps pigheadedly, refused to budge: The Senate insisted that the amount proposed by the CRA should be allocated to the counties. The National Assembly (and the Treasury) wanted to allocate rather less.

What was is the legal force of the CRA’s proposals?

The Constitution calls these “recommendations”. The Court considered that the Constitution means what it says. This is the right approach. Those who drafted the Constitution did leave some uncertainties, which the courts have had to interpret. But they chose their words carefully – and if they said recommendation they meant recommendation, not decision. In fact, they went further and said that, if Parliament wanted to pass a law that was significantly different from the CRA’s recommendations, they had to explain their reasons.

Here we have a careful balance between expertise (the CRA) and politics (Parliament). Creating an independent commission involves a deliberate decision to reduce the power of the democratically elected people. But to hand over too much power to a commission will be an error. True we don’t allow Parliament to change the decisions of the IEBC – MPs are too personally affected. But commissions can be rogue, too, as we know. So the decision about who can disagree with a commission is a delicate and important one and the constitution makers were aware of this.

BREAKING THE DEADLOCK

Since Parliament had scope to disagree (with reasons) with the CRA, and both Senate and the National Assembly were to be involved, how to deal with disagreement? There is a process – a mediation committee – to be set up involving both Houses. Who can bang their heads together if they still do not agree?

The real constitutional pressure is that if Parliament does not pass the law authorising the spending of money (the Appropriation Act), eventually they will not be paid. But Parliament tried to avoid this by passing the Appropriation Act even though the Division of Revenue Act had not been passed.

The government cannot function without money, so the Constitution does deal with what happens if the Appropriation Act is not passed before the financial year begins. Parliament can authorise money to be spent (Article 222) but only half of what was budgeted. So after six months or so, the government would run out of money to spend.

The Supreme Court said that Parliament’s effort to get around this by passing the Appropriation Act before the Division of Revenue Act was wrong.

The Constitution puts another pressure on Parliament to pass the law: If a law required for constitutional implementation is not passed by the deadline in the Constitution, the courts could order that Parliament is dissolved –meaning all the MPs would go home and there would be an election.

The Court said this does not apply to the annual, routine, Acts such as the Division of Revenue Act. However, it said that Parliament ought to pass a law to deal with this question of money for the counties if the Division of Revenue Bill is not passed. This, it said, was demanded by the Constitution, suggesting that if it is not passed maybe the last resort of dissolving Parliament might be available. This is an expected, and creative, use of a provision that says Parliament must pass a law to ensure counties have enough support to function.

HOW ABOUT THE COUNTIES

Article 222 applies to money to be spent by the national government. The Court said a certain amount should also be provided to the counties in such a situation. It should be half of what had been allocated to counties the previous year. Justice Ndung’u disagreed and said that amount should be 15 per cent of the revenue collected.

She did not deal with the fact that under the Constitution, the minimum amount for counties is to be 15 per cent not of the current year’s revenue but of the last approved national audited accounts – and Parliament is woefully behind in its consideration of the Auditor General’s reports. Neither she nor the majority seems to have considered the difficulty that before the share of each individual county is clear the County Allocation of Revenue Bill must also be passed. Presumably, county shares would have to be based on the previous year’s arrangement.

Finally, the Court said it could not prescribe any timetable for transferring money to the counties. This must be done in a reasonable time, it said. But they could not say what that would be and did not produce any satisfactory remedy for the counties if they did not get their money.

Chief Justice David Maraga added his own critique, and account of the context of the Constitution. He said, “Has the Executive arm of Government endeavoured to thus implement the Constitution? Has Parliament played its role in the implementation of the Constitution? In my respectful view, they have not.”

And he ended by saying, “Unless decisive action is taken to address the historical injustices engendered by the skewed development founded on Sessional Paper No. 10 of 1965 and subsequent policies; unless decisive action is taken to address the income and resource allocation inequalities in this country; unless decisive action is taken to address the soaring unemployment; and unless decisive action is taken to address the looting of public resources through corruption; only the naïve will fail to see that we are sitting on a powder keg the detonation of which will render the 2007-08 post-election skirmishes child play.”