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‘Don’T Tax Us Into Oblivion’ On Public Pension Deficit

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Jeffrey Beckles

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government “cannot tax Bahamians into oblivion” to cover its multi-billion dollar public sector pension deficits, the Chamber of Commerce’s chief executive warned yesterday.

Jeffrey Beckles, speaking after the issue was again flagged by the International Monetary Fund (IMF) during its latest Article IV visit to The Bahamas, told Tribune Business the situation was “crazy” given that a public sector worker was retiring almost every day with no funding set aside for their later years.

He added that that the current “pay-as-you go” retirement funding for civil servants, and multi-million deficits of non-contributory pension schemes at multiple state-owned enterprises (SOEs), had long been recognised as “unsustainable” and required reform “much sooner rather than later”.

“It is a known fact that we cannot continue to service the debt of these non-contributory pension plans,” Mr Beckles told this newspaper. “Since it’s unsustainable, what are we going to do about it?

“We cannot literally wait until the country is literally broke or there is no movement. We have to take a holistic approach in beginning the dialogue to reform and modify the system. You’re not going to be able to tax Bahamians into oblivion just to pay pensions. That’s going to be met with overwhelming resistance, and rightly so.

“We have to sit down and figure out how to sustain this,” the chamber chief added. “The truth is that every day that goes by somebody qualifies for a pension without any new revenue coming in to sustain it. That’s crazy. We have to start that conversation much, much sooner rather than later.”

Mr Beckles’ concerns were echoed by Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, who told Tribune Business that existing public pension schemes needed to be “capped” to slow, or prevent, further expansion of their deficits and the potential liability for Bahamian taxpayers.

“Somebody has to have the testicular fortitude to to say they’’re putting in that cap,” Mr Myers said. “Stop beating around the bush. It’s unsustainable. It will tank us if it’s not dealt with. It’s completely unsustainable.”

The IMF has for several years, with increasing urgency, been prodding the Government to address the multi-billion dollar liability it and Bahamian taxpayers face as a result of unfunded civil service pension liabilities.

Previous research by the KPMG accounting firm suggests this unfunded liability is now likely to be approaching $2bn, with the 2018-2019 Budget showing that the Government is currently allocating between $95m to $100m each year to finance civil service pensions during the three fiscal years to 2020-2021.

The IMF, in its Article IV report last year, agreed that the current system - where civil servants contribute nothing to funding their retirement - is “unsustainable”. And it yesterday called for “decisive measures.... to reduce debt”, singling out public sector pensions and health as two areas deserving close attention.

“The civil servants’ pension system is unsustainable,” the Fund had warned last year. “Government employees draw pensions at retirement without contributing to the system while employed.

“Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $3.7bn by 2030 as the population ages.”

The IMF called for reforms that involve “moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term”. This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 per cent by the taxpayer through the Budget - as is done currently.

Tribune Business possesses a presentation delivered by the KPMG accounting firm in 2013, the early years of the Christie administration, which provided options for how the Government could arrest a growing liability that threatens to burden future Bahamian generations.

KPMG estimated the unfunded, ‘pay-as-you-go’, civil service pension liabilities at around $1.5bn. These liabilities were set to increase to $2.5bn by 2022, and $4.1bn by 2032, unless reforms are enacted.

The IMF, for its part, said in 2016: “Government pensioners (15 per cent of the public work force) receive pension payments from the Budget that, on average, stood at 1 per cent of GDP and 7.3 per cent of tax revenue per year in 1994–2014.

“The accrued pension liabilities [will total] $1.5 billion in 2021 (17.9 per cent of GDP). Pension payments and liabilities are projected to reach $230 million (1.5 per cent of GDP) and $3.7 billion (24 per cent of GDP), respectively, by 2030.”

Its 2018 Article IV report projects a $2.2bn increase in these unfunded liabilities over the 18 years to 2030, which translates into an average increase of $122 million per year.

The focus on the civil service pensions also fails to include the multi-million dollar deficits in existing schemes at SOE’s such as Bahamas Power & Light (BPL) and the Water & Sewerage Corporations, where staff pay little to nothing and the contribution burden falls entirely on the loss-making companies.

Meanwhile, the IMF’s reference to “health” in yesterday’s statement was interpreted by some to be a warning concerning the proposed National Health Insurance (NHI) scheme amid fears that this too, could become unsustainable, if the Government gets its assumptions and financial calculations wrong.

“Until we get a hold of all these other things we have to park that,” Mr Myers told Tribune Business of NHI. “I get it. It’s a massive priority and I agree with it, but we have to get our house in order before we do that.

“These guys are kidding themselves if they think they can keep the expenditure to the targets they’re talking about. Absolutely kidding themselves. We know from everywhere else in the world that’s going to be a huge number that the Government is going to have to fund. You want that on top of all the other problems and expenditure the country has?”

Comments

EasternGate 1 year, 6 months ago

Regrettably, the narrative here seem to infer that retired Civil Servants are leaches" on the country's wealth or lack thereof. Are you sanctimonious pundits aware that most Civil Servants with more than 30 years of service receive about $500-$600 per month pension? It's the gaddamn politicians beginning with LOP that created this shit! Instead of paying the high end into NIB and reducing pension benefits...they paid the least, consequently, Civil Servants get below $300 per month! What a National disgrace!!!!

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