The National Insurance Board (NIB) has responded to two releases by The Nassau Institute relating to a case study of the NIB’s proposed combined tax increase of 84.1% in an effort to keep the fund solvent and add unemployment and pharmaceutical benefits.
To reiterate, using data for an associate making over $600 per week as an example, the combined total presently paid in by the employee and employer, per week is $35.20. With the proposed changes, the “contributions” would total $64.80 per week, for an increase of 84.1%.
While the case study presented was for employees earning $600 or more per week as cited above, let’s look at a couple other salary ranges.
In their response, the NIB referenced employees making $400 per week and $525 per week. The tax for people in these two categories will rise by 22.73% and 61% respectively. Even entry-level employees making $160 per week will see a combined increase of $3.20 or 22.73% in â€œcontributionsâ€.
The NIB refers to the tax increase as a “proposed 2% rate increase”. As you can see, the increases are, in reality, much larger than that.
While the NIB confirmed the tax for people e arning $600 per week would indeed increase by 84.1%, they noted that “60% of workers will see no change in their weekly or monthly deductions.”
Bearing in mind the tax increase proposed was based on the NIB’s internal actuarial review that the fund would be depleted by 2032 if increases are not implemented, to state that benefits will increase, and 60% of workers will not contribute, is no less than imprudent. It’s an attempt to suggest that there is a free lunch. A dangerous precedent for a fund that the NIB itself has confirmed is headed for bankruptcy if changes are not made. (See the 8th Actuarial Review here http://bit.ly/pGGy9 )
The NIB release suggests that for them to do nothing is irresponsible and no doubt many people have benefited from the NIB programme.
However, it is also negligent to continue with a fund that pays today’s retirees out of money paid in by today’s employees and employers with a changing demography. Eventually there will be more claimants than contributors, which is exacerbated when 60% of today’s contributors are not required to pay an increased share.
Other reckless behaviour is the abuse of the fund by lending “contributions” to government for projects outside the terms of the NIB Act, as well as the bloated cost of administration.
On its present course, with increased benefits, and fewer people bearing the weight of the funding, as the population ages NIB will inevitably implode and all those people that have paid their taxes, secure in the knowledge that they will have a retirement fund, unemployment insurance or pharmaceutical benefits when they need them, will disappear in the insincere apologies from the political class of tomorrow.
The other scenario is the tax burden to sustain the fund will become so burdensome that it defeats the purpose.
The Nassau Institute implores the government, the political class in general, and the nation at large to consider the reforms implemented by Chile. Money paid into the fund by today’s workers are held in an account in their name for their retirement and the country budgets to pay today’s retirees.
Is this the ideal? Certainly not, but it just might be one way to guarantee today’s workers and employers a return later in life and will not encumber future generations.
In another case study, one company’s total “contributions” will go from around $1,700 per week on average to $2,700 per week on average. This is $52,000 per annum for a company with around 60 associates. Bear in mind this is the combined employee and employer total per annum that takes more money from each employee and the company. The additional funds taken must be made up somehow. Should the country expect higher inflation as a result?
If the business class raised prices as proposed by the NIB, the political class would be railing about them as profiteers and gougers.
It is intriguing that the government can pass a law to take a citizens money to start the National Insurance Board and then suggest that they are doing the country a favour by “providing” benefits for retirement, sickness and unemployment etc. It’s an exquisite use of doublespeak.
In closing, the NIB insists that contributions to the fund are not a tax. Well, if it walks like a duck and quacks like a duck, we would say it’s a tax. And to increase this tax by up to 84.1% and continue to operate as it does is sad commentary for a country that considers itself the leader in the Caribbean region.