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News Report: NIB back-pedal ‘no way to run country’

Published by Neil Hartnell, Tribune Business News, March 12th, 2024

The Government’s back-pedalling over the phased strategy to increase the National Insurance Board’s (NIB) all-in contribution rate to 26.3 percent is “not a way to run a country”, it was asserted yesterday.

Peter Goudie, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) labour division chief, told Tribune Business that the statement by the Prime Minister’s Office contradicting what the minister responsible for NIB had said just hours earlier has left businesses and workers “totally confused” over how to prepare for the increases that may be coming.

“How can you plan anything when nobody knows who’s talking for who?” Mr Goudie, a private sector representative on the National Tripartite Council, asked. “The Prime Minister is saying his minister didn’t know what he was talking about, and that he didn’t know what the acting director of NIB was talking about.

“The best word I can use is confused. They either approved it or they didn’t, but for the Prime Minister to come out and confuse everybody over an announcement by two people is beyond me. The minister with responsibility for NIB and the head of NIB, and then he says they’re both wrong.

“That’s the whole point. You can’t plan, and you don’t know what’s coming. Who knows? That’s not a way to run a country. It’s confusing. Totally confusing.” For businesses, the increase in NIB contributions represents an added cost they will seek to recover or offset, while for workers it means a reduction in take home pay although that has to be set against NIB’s rescue/survival and continued benefit provision.

For companies, higher NIB contributions represents an increase in labour and employment costs, and the marginal cost of hiring more staff. Strategies to cope could involve increasing the prices of their products and services to end consumers, and/or a combination of expense and cost reductions that could involve staff terminations or a cutback on hew hiring.

Alfred Sears KC, the minister with Cabinet responsibility for NIB, on Thursday unveiled plans to raise the total contribution rate by 1.5 percentage points every two years over the next two decades through to 2044 but the Prime Minister’s Office stated just hours later that this series of phased-in hikes had not been approved or agreed by Cabinet.

Tribune Business reported on Friday that the strategy unveiled by Mr Sears, if fully implemented, would mean the all-in NIB contribution rate as a percentage of insurable wages will increase to 26.3 percent by 2044 - a rate equivalent to a developed country’s income tax.

Mr. Sears and senior NIB officials gave every impression that the contribution rate increase strategy had been approved. Heather Maynard, NIB’s acting director, confirmed to Tribune Business that the series of 11 increases unveiled by Mr Sears in his mid- year Budget presentation would ultimately more than double NIB’s total contribution rate from the present 9.8 percent to 26.3 percent after July 1, 2044.

That would represent a 168.4 percent increase in the contribution rate - spread over a 20-year period - in a bid to ease the financial burden and strain this may impose on both businesses and working Bahamians. Ms Maynard also confirmed that, under this strategy, the contribution rate paid by workers will more than triple - rising from the current 3.9 percent of insurable wages to 12.15 percent.

Bahamian businesses, who presently face a 5.9 percent contribution rate, would see this jump to 14.15 percent by 2044 based on the series of 1.5 percentage point increases all being split evenly between employer and employee - meaning their respective shares will rise by 0.75 percentage points every two years.

The increases set to take effect on July 1, 2024, will increase the employer and employee contributions by 0.75 percentage points each. The employer contribution will rise to 6.65 percent from the existing 5.9 percent, while that for employees will grow from 3.9 percent to 4.65 percent.

The contribution rates for self-employed and voluntarily insured persons will jump from the present 8.8 percent and 5 percent, respectively, to 10.3 per- cent and 6.5 percent as part of a strategy to ensure The Bahamas’ national social security system survives for the long-term to meet its benefit obligations to all citizens and legitimate persons who qualify for assistance.

However, the July increase will only take the all-in NIB contribution rate for working Bahamians to 11.3 percent - a level that financial studies, known as actuarial reports, state is still too low to ensure the scheme’s medium and long- term survival and prevent the $1.5bn reserve fund from being depleted in 2028 as predicted.

“An increase of the contribution rate by 2 per cent (over the existing 9.8 percent) every two years starting on July 1, 2022, and ending on July 1, 2036, could restore the short and medium-term financial sustainability of the scheme,” the last NIB actuarial report said.

“Starting in 2029, the required annual contribution rate to pay for all expenditures becomes the pay-as-you-go (PAYG) rate. As an illustration, the contribution rate will have to increase from 9.8 per cent to 16.9 per cent in 2029, and will reach 32.3 per cent in 2078.”

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