Small businesses facing struggle on NIB rate hike


Tribune Business Reporter


BAHAMIAN small businesses will struggle to absorb any National Insurance Board (NIB) contribution rate increase due to the multiple other expenses hikes they are grappling with currently, a sector consultant has warned.

Mark Turnquest, president of the 242 Small Business Association and Resource Centre, told Tribune Business his members and clients are still “trying to get our feet on the ground” following COVID- 19 while acknowledging that NIB rate increases are “inevitable” to rescue the country’s only social security scheme.

Pointing out that many small businesses, such as clothing and electronics retailers, are already absorbing up to 30 percent increases in their labour costs since they all have staff impacted by the recent minimum wage increase, he said he “understands” that an NIB increase must come.

NIB’s 11th actuarial review, published last year, recommended that the contribution rate be increased by two percentage points - from the current 9.8 percent to 11.8 percent - last July, with further hikes implemented every two years through to July 1, 2036, in a bid to “restore the short and medium-term financial sustainability of the scheme”.

Prime Minister Philip Davis held off from enacting such an increase at that time to allow businesses and households more time to recover from the COVID pandemic, arguing that he did not want further burden them and the wider economic recovery.

But, taking its cue from the actuarial review, NIB’s Board of Directors has now followed its conclusions by recommending to the Davis Cabinet that the contribution rate be increased by between three-quarters of a percentage point and 1.5 percent. It had wanted this to be implemented from January 1, 2023, and is now hoping for July 2023 after this deadline was missed. The recommended increase is smaller than that suggested by the 11th actuarial review.

Mr Turnquest said: “We all know it is a two-factor problem; the national problem that we have, and the small business problem, so there’s a balancing act. We know that NIB has to increase, but we are concerned with how much it will be increased this year, in particular, because we’re just rebounding from COVID-19.

“We’re just trying to get our feet on the ground from the inflation, the shipping costs that were just killing us in 2022. Now we have a 24 percent minimum wage increase from $212 to $260 per week, and that [has already] increased our NIB contributions.”

While Mr Turnquest has not yet spoken to his membership about the impact from a possible NIB contribution rate hike, he confirmed they know such an increase is “inevitable”. The only question is when it will be implemented, and how much the increase will be.

“The challenge is the more salaries you have, the more you have to pay,” he added. “So that contribution increase is going to hit all of us. Everybody is going to be hit, but our take is that if you don’t increase it it’s going to be a worse position next year and, if you do, you are going to be in a worse position this year.

“So it has to be done. We understand that the increase must take place, but we just want it to be done in stages equally. We would rather an increase every year at a standardised rate than a sharp increase year over-year.”

NIB’s present contribution rate is 9.8 percent, split 3.9 percent/5.9 percent between employee and employer, with the latter paying the majority. The 11th actuarial report is recommending that this rate increases by 72.4 percent, in percentage terms, in the near-term to 16.9 percent by 2029 before more than doubling over the long-term.

The last time NIB’s contribution rate increased was in 2010, when it rose from 8.8 percent to 9.8 percent under the last Ingraham administration. This was the first - and only - time that the rate had increased since NIB was founded in 1974.

Dwayne Higgs, WHIM Automotive’s general manager, questioned why NIB’s contribution rate has not been indexed to inflation. “What needs to happen is successive governments need to just stop touching the fund to do other things with it rather than using it as some sort of pension fund for retirees; what it was meant for,” he added.

NIB’s reserve fund is now forecast to be exhausted one year earlier than previously projected, in 2028 as opposed to 2029, and the report recommended that the Government focus on shoring up the social security system’s short-term viability through “adequately financing” its pensions arm which represents longer-term benefits. This drove the recommendation to increase NIB’s contribution rate by two percentage points to 11.8 percent by July 1.

NIB also suffered a $190m deficit blow-out triggered by COVID-19, which resulted in its reserve fund slumping to $1.54bn at year-end 2020. NIB’s reserve fund shrank by almost 11 percent, or nearly $189m, in just 12 months as it was forced to liquidate investments to meet unemployment payouts and other forms of COVID-related assistance when the Bahamian economy collapsed virtually overnight.

The figures reveal that short-term benefits payouts, which would have included NIB’s 13-week unemployment assistance initiative, more than tripled year-over-year - increasing by 209 percent from $41.868m in 2021 to $129.84m - due to the scale of terminations and furloughs sparked by COVID-19 lockdowns and other restrictions.

As a result, total benefits expenditure soared to $405.876m for the 12 months to end-December 2020, representing a 30.2 percent year-over-year jump from 2019’s $311.64m, with the increase driven almost entirely by unemployment and other short-term relief payouts.

And the benefits surge coincided with a 21.3 percent plunge in NIB’s contribution income from employers and their workers, which declined by more than $51m from $287.131m in 2019 to $225.984m the following year. Monies received from employers dropped by almost 20 percent, falling from $166.986m to $134.075m in 2020, while contributions from the self-employed fell by close to 22 percent. They plummeted from $116.11m in 2019 to $90.994m.

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