The Tribune

* Bran: 'Sign' of austerity that will come

* But increase now is 'terrible timing'

* Accountability urged before rate rise

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Businesses yesterday said talk of National Insurance Board (NIB) rate hikes is "a sign of what's to come", as they warned the Government: "You cannot get water out of a stone."

Branville McCartney, the former Democratic National Alliance (DNA) leader, whose business interests include a law firm, pharmacy, private school and real estate, told Tribune Business that raising social security contribution rates now would be "terribly timed" given the economy's continuing struggles to rebound from COVID-19's devastation.

Speaking after Brensil Rolle, minister with responsibility for National Insurance, suggested that "consideration must be given" to multiple calls for rate hikes if NIB is to meet its obligations to the Bahamian people, Mr McCartney said any increase would be a tantamount to a tax rise that further depressed business profits and employees' take home pay and spending.

He admitted that talk of such increases was a further signal that The Bahamas and its people now face "an extremely tough decade" of austerity measures, including new and/or increased taxes and public spending cuts, to pay for the COVID-19 and Hurricane Dorian blow-out that has rapidly worsened a bad fiscal situation.

"The business community is suffering as it is now," Mr McCartney said in response to Mr Rolle's comments. "Last year, I'm sure, the majority of companies would have seen the worst business year perhaps in their existence. There has to be a balancing act when the Government makes this determination to increase what is an indirect tax on the business community.

"Don't get me wrong. I understand what the Government is trying to do. On the one hand, the Government is trying to get money into NIB's coffers because it has spent so much because of COVID-19, but you don't want to cause businesses more strain because it leads to them going out of business and puts the strain on government."

NIB contributions, which take the form of a payroll tax, are currently split 3.9 percent/5.9 percent between employee and employer, respectively. Any increase would represent a rise in marginal labour costs, and could prompt companies to either terminate some staff or freeze hiring at a time when the economy is burdened with a jobless rate some say is as high as 40-50 percent.

Picking up this theme, Mr McCartney said any NIB rate increase that causes such developments would ultimately rebound on the Government and social security system and be counter-productive, as they would become responsible for picking up the costs associated with increased unemployment.

"You cannot draw water out of a stone," he warned the Government, "when businesses are taxed to the maximum with VAT, and the Business Licence fee is due in short order. I hope it doesn't make the average business unsustainable by adding more taxes, whether it is indirect or not, to the business community.

"It is terribly timed. People are wondering now... they are preparing for their Business Licence, preparing for their VAT payment. There's only so much a business can take, and with many just re-opening and getting into the swing of things, they are incurring a hell of a lot of expenses."

Successive governments have "kicked the can down the road" on an NIB rate increase for years, if not decades, preferring to leave the issue for the next administration to decide even though multiple actuarial reports have warned that the social security system's $1.7bn reserve fund would be exhausted by 2031 if this and other actions were not taken.

The collective inaction means that the magnitude of any reforms will be greater, and the impact on companies and workers stronger, than if the Government had moved much earlier on these recommendations. COVID-19, and NIB's collective $100m benefit payout, will only have accelerated and increased the pressure for change such that it can no longer be ignored.

NIB's last published financials, for 2017, show it had just $21.177m in cash on hand at in the bank at year-end, meaning it will likely have had to liquidate deposits and investments to meet COVID-19 payouts. It was also instructed to repatriate its overseas holdings to boost the external reserves by the Central Bank.

The latter, in its recently-released Financial Stability Report, said of COVID-19's impact on NIB: "Due to the effects of the 2020 COVID-19 pandemic, however, the resultant surge in claims on The Board has led to a drawdown in liquidity, which could have implications for financial stability over the next few years."

Thus COVID-19 has worsened a situation that has seen NIB's benefit payouts exceed contribution income for the past three years at least. And the Inter-American Development Bank (IDB), in 2018, warned that NIB contribution rates must more than double to over 20 percent to prevent a long-term Bahamian pension crisis.

The result would be that The Bahamas' 220,000-plus workforce all take a hit from reduced "take home pay" and suffer a loss of disposable income, leading to reduced living standards. And the corresponding increase in employer contributions will cut into corporate profits and cash flow, acting as a significant drag on economic growth by deterring job-creating investment and expansion.

Rick Lowe, an executive with the Nassau Institute think-tank, said of the potential NIB contribution rate increase: "It's coming or the system will go broke. They're going to end up trying to get blood out of a stone. It just adds to the burden, and may cause people to do things they shouldn't be doing like hiring people under the table. It's not a pretty picture.

"It's like scraping the bucket of water and not putting out the expenditure fire because they use NIB for all sorts of things. NIB is such easy money, as they like using it to purchase property that doesn't generate a rental return from the Government."

Ben Albury, Bahamas Bus and Truck's general manager, echoed Mr Lowe in arguing that NIB and the Government first needed to show transparency and responsibility in how Bahamians' social security funds are being managed before they started talking about a contribution rate hike.

"This has been a difficult year, and I know NIB has taken a big hit, but increasing costs for employers as well as employees will be very challenging at a time like this," he told Tribune Business.

Mr McCartney, meanwhile, argued that talk of NIB rate increases was an indication of further austerity measures to come in what will be an even harder decade for Bahamian society and the economy.

"I think what the minister of national insurance said this morning is a sign of more to come," he added. "We are going to have to brace ourselves for it. There's nothing we can do. Recovering from the last recession was tough. Recovering from COVID-19 is going to be extremely tough."