The Tribune

A Cabinet minister yesterday defended the $55.7m increase in public sector worker compensation during the first nine months of the 2022-2023 fiscal year as essential to boosting morale and productivity.

Michael Halkitis, minister of economic affairs, told the Senate in leading off the Budget debate that the promotions, salary increases and new hires initiated by the Davis administration via 19 new industrial agreements was vital to maintaining public sector output.

Recalling how he walked into a meeting at one of the agency's under his ministry, only to be told immediately by one attendee he had not received a promotion in 16 years, the minister acknowledged the sceptical reaction to his and the administration's pledges that the matter would be addressed.

"You say: 'We'll get on it'. They give you that look. I said: 'I know you've heard it before, but we'll get it done," Mr Halkitis recalled, as he justified the collective $55.7m increase in public sector worker compensation in the nine months to end-March 2023. He added that this accounted for "the bulk", and was the largest contributor to, the total $145m increase in the Government's total recurrent spending during that period to $2.3bn.

"It goes to morale, it goes to productivity," the minister said of the increase. "It goes to the feeling of self-worth and importance when an individual has benefits due to them and they have not been forthcoming, and finally we've been able to get them done."

Mr Halkitis also confirmed the Government is in the process of drafting legislation to reform civil service pensions, which will result in new hires having to finance a portion of their retirement from their own savings via a defined contribution plan. The minister described the present pay-as-you-go system, where public service pensions are funded directly by Bahamian taxpayer revenues, as "simply unsustainable".

Recalling how he worked on the reforms during the last Christie administration, Mr Halkitis said the then-government opted to focus on VAT's implementation and the initiative was ultimately placed "on the back burner" following the Minnis administration's election coupled with the impacts of Hurricane Dorian and COVID-19.

The Government has long had its woes with unfunded civil service pension liabilities, which previous research by the KPMG accounting firm suggested would likely have reached $2bn by this stage without any reforms. Civil servants presently contribute nothing to their retirement, which are being funded by Bahamian taxpayers at the sum of $134.744m in the 2023-2024 Budget.

The IMF, in its Article IV report in 2018, agreed that the current system - where civil servants contribute nothing to funding their retirement - is “unsustainable”. And it called five years ago for “decisive measures.... to reduce debt”, singling out public sector pensions and health as two areas deserving close attention.

“The civil servants’ pension system is unsustainable,” the Fund warned. “Government employees draw pensions at retirement without contributing to the system while employed. Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $3.7bn by 2030 as the population ages.”

The IMF called for reforms that involve “moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term”. This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 per cent by the taxpayer through the Budget as is done currently.