MPs Taxes and Inflation
by andrew@jijinimarkets - Sun 22 Jun 2008
I've been following two debates lately that at first glance appear unrelated but are actually linked in interesting ways. The first is the clamour for MPs to pay taxes on their fat salaries. The second is the rising cost of food (and almost everything else) that has been present in Kenya for decades but has become more drastic in the last year due to rising oil and food prices globally.
On the face of it, it makes sense for MPs to be treated like the rest of us. Their argument that they dish out their salaries to their constituents through hand-outs and harambees doesn't hold as almost every middle class to wealthy family is faced with similar requests from their less well-off relatives. However, in my opinion, making MPs pay tax will only lead to one thing: them increasing their salaries to cover what they lose through taxes. With MPs having something of celebrity status and with their salaries being some of the highest in Kenya, its not inconceivable that these salaries are used as benchmarks for middle to senior level management jobs in the public and private sector. Eventually these pay levels cascade down to the general economy although not necessarily immediately or at the same rate.
This leads me to conclude that the trend of MPs increasing their wages has been a major contributor to inflation although I doubt it has been recognised as such. With employees receiving more, they will be willing to pay more for goods and services. Also, with employers paying more through wages, they will tend to charge more for their goods and services. Again with prices going up, employees demand more pay. All this has the impact of drivng inflation up in a vicious cycle that can easily get out of control and result in double to triple digit inflation.
So my opinion is: Let MPs keep their untaxed salaries. The taxes are likely to do more harm than good to the common mwananchi.
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