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NIB rate increase called 'absolute balancing act'

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ROBERT SANDS

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior hotelier yesterday urged the Government to be "judicious" with the size of future National Insurance Board (NIB) contribution rate increases as he described the situation as "an absolute balancing act".

Robert Sands, the Bahamas Hotel and Tourism Association's (BHTA) president, told Tribune Business the phased increases every two years are essential to protecting the social security system's integrity and that of its $1.4bn reserve fund but cannot occur at the expense of over-burdening the economy and individual businesses.

Speaking after Myles Laroda, minister of state in the Prime Minister's Office with responsibility for NIB, confirmed that contribution rates will be raised every two years following the first hike on July 1, 2024, he added that it was presently impossible to predict the impact on the hotel and tourism sector because the size of the jump has not been revealed.

However, Mr Sands reiterated that the priority should be to save NIB and its reserve fund, and ensure its sustainability for generations, given the important role its benefit payments play in upholding welfare and living standards for hundreds of Bahamians.

"The parties should not allow this fund to meet its demise," he told this newspaper. "Many working individuals contribute to this fund for a significant amount of years, and are looking to be beneficiaries of this fund in their retirement age and to help them through difficult and uncertain times.

"I think it's extremely important every effort is made to ensure the NIB fund survives and remains healthy for a much longer period. The reality is that many have put in a significant amount of years in the workforce prior to reaching the retirement age of 65. One would assume they have worked for 40-50 years.

"They're looking for some type of retirement benefit to support whatever savings and pension plan they may have in place so that they still have a good life in their later years, and that's the basis of why NIB was put in place in the first place."

However, Mr Sands said the Government needed to take care that the rolling series of as-yet-undisclosed contribution rate increases it plans to phase in every two years are no so large as to create an unsustainable cost burden for the private sector. "I think the Government will have to be judicious about the level of increase in succeeding years," he told Tribune Business. "It's a balancing act; it's an absolute balancing act."

As for the failure to-date to disclose what the rate increases will be, Mr Sands added: "I would hope it's done in a timeframe that allows companies and self-employed individuals to plan and budget and prepare for whatever increases are coming online."

Peter Goudie, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) labour division chief, and a National Tripartite Council Board member, told Tribune Business it was "disenfranchising" and "disheartening" for the private sector that the Government has yet to reveal the extent of the NIB contribution rate increases.

"At the end of the day it's just going to increase our costs," he said. "I just find it disenfranchising that they cannot give us an amount. How can you budget for something where you don't know what the amount is? It's like a surprise: 'Hey, surprise, we're going to increase your rate by 'x' amount'.

"That's what I find disheartening about the thing. We'll just have to hope it's around 1 percent or whatever, and move from there. It's all we can do. It's unfortunate. The employees don't know either. Nobody knows. It's really disenfranchising to all employers in this country how an increase is coming, and somebody keeps saying it, but they won't say what it is."

The current NIB contribution rate is 9.8 percent, split 5.9 percent/3.9 percent between the employer and employee, with the former paying the larger burden. However, Mr Laroda said the July 1, 2024, increase will be split 50/50 between the two parties.

Mr Goudie explained that while there were no issues with an NIB contribution rate increase by itself, it had to be seen in the context of "the whole picture" where companies are being hit with multiple cost and expense increases at the same time via Bahamas Power & Light (BPL), minimum wage rises plus general inflation and the cost of living crisis.

"We're dealing with a whole bunch of stuff that's going to drag down businesses," he added. "Thank goodness tourism is back, but it's tough; really tough for the 'Mom and Pop' operations. They're the ones that suffer the most. It's not just NIB; it's BPL increases and everything else. Then they're talking about a living wage."

NIB’s present reality was predicted more than two decades ago by its seventh actuarial review, completed in 2001, which forecast that “reserves are projected to become exhausted” by 2029 if comprehensive reforms are not implemented to address the fundamental problem of benefit payouts exceeding contribution income. The recipient of that review, which was only one year out, on September 11, 2002, was then-NIB chairman and now-Prime Minister, Philip Davis QC.

Now, with just five years left to the NIB Fund’s total depletion in 2028, the magnitude of the correction threatens to be that much more severe for businesses and workers already grappling with surging inflation, COVID recovery, rising gas prices and other cost increases.

NIB’s 11th actuarial report called for a two percentage point increase in contribution rates to be implemented by July 1, 2022, with subsequent further hikes enacted every two years until 2036 to secure the social security system’s long-term financial sustainability. The date given by the Prime Minister means that the Government will ultimately end up pushing this back two years.

Other NIB reform options include raising the “official” retirement age, increasing the contributions required to become eligible for benefits, and further insurable wage ceiling increases.

Mr Laroda on Tuesday night said NIB’s benefit payments now exceed its contribution income. “The reality is we are paying out much more notwithstanding we are collecting $300m," he added. "If you're paying out $353m, that's on the benefits side alone. The overall impact of NIB on our country is evident from contributions of $24m in the 1980s to approaching $300m in 2022.

“Even more significant is the sharp increase in benefit payments to NIB’s contributors and dependents. These benefits have mushroomed from $8m in 1981 when the programme was in its infancy stages to $354m in 2022 as a mature scheme.

“Can you imagine the degradation and the displacement of our people that would have occurred if this $354m were not put in into our economy last year? The scheme survives and continues to serve its purposes as a social safety net for Bahamians from all walks of life”

Comments

bahamianson 11 months, 4 weeks ago

Yes, think about it. Companies will have to pay more out. More people will be laid off to balance out the profit. We have failed.

LastManStanding 11 months, 4 weeks ago

The truth is that we are ruled by a mafia who think of the Bahamian people as nothing more than slaves that they can juice to fund their extravagant lifestyles and onerous pensions. They know that nothing is ever going to happen to them, and that every 5 years Bahamians will be twerking their booty on stage for some fried chicken and rum talking about PHellP/FNM is the only thing they want. What is the worst that is going to happen to them: get voted out in 5 years, no big deal, just wait another 5 to get put back in. Nothing in this country makes sense until you realize that successive governments have intentionally destroyed the education system to create a populace of dumb and ignorant voters to give their banana republic regimes a sense of legitimacy.

John 11 months, 4 weeks ago

Stupidity says ‘if you continue to increase taxes on a people, you will end up collecting less taxes. Simply because some people/businesses will refuse to pay, not only the additional, but the original they bwere paying. And some persons/businesses just will not be able to pay, so they will close down or otherwise fall off the radar.

donald 11 months, 4 weeks ago

I am close to closing, one more tax increase and I'm done

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