Editorial | Widen discussion on debt obligation

The Government's plan to increase, in two tranches, starting in the coming fiscal year, employer and employee contributions to the National Insurance Scheme (NIS) is an important step towards rescuing the scheme.

Apart from potentially staving off the collapse of the only pension to which many, mostly poor, Jamaicans have access, the move represents something else that is quite important - a start towards bringing under control a substantial part of the national debt that is not generally talked about, and of which most people are unaware. They generally exist in a sort of murky nether parts, until they are unaffordable, leading to the collapse of the institutions that they sustain. Hopefully, that won't be the case in Jamaica. That is why we suggest to Nigel Clarke, the finance minister, that, as he prepares his first Budget, he brings to light these generally opaque issues, allowing for an open and frank conversation about the real, and usually, longer-term obligations faced by taxpayers.

Generally, references to Jamaica's - and other countries'- national debt relate to monies borrowed by the Government, and loans owed by its institutions and guaranteed by the administration. That has been declining in recent times and is now down to around 107 per cent of gross-domestic product (GDP) , from nearly 140 per cent six years ago.

Not the full picture

These calculations, however, don't tell of a largely implied debt, owed by future generations, like current, especially younger NIS contributors, as well as the Government's existing obligations to some of its agencies, which remain hidden because of the accounting methods employed.

With regard to the NIS, until Dr Clarke's announcement of the combined one percentage point hike in the contribution rate, as well as his intention to lift the insurable income, by 2022, to J$5 million, from the current J$1.5 million, not only would the NIS go broke by 2037, but the scheme, if it was somehow kept afloat that long, would have, by 2063, have a deficit heading towards J$400 billion. It would be useful for Dr Clarke to say how these scenarios will change when the measures come into force.

The NIS is not the arrangement on which there is need for additional discussion. The Government's pension scheme, to which taxpayers contribute nearly J$40 billion annually, is another, besides the recent moves towards its fix. Under the new law, the Government, beginning this year, is lifting, over five years, the age at which its employees retire from 60 to 65. Concomitantly, they are being asked to contribute to their pensions, paying one per cent of their salaries in the first year and reaching five per cent over half a decade. That's a good start. However, the Government's pension scheme remains a defined -benefit one, in that workers are guaranteed pensions of a specific amount, calculated as a ratio of their salary and years of service.

In modern, private-sector realignments of pension schemes, a red line is sensibly drawn under the old arrangement, with the obligation to workers within a specific age range honoured. Younger and new employees would then transfer to a new scheme, to which they and their employer contribute and with post-employment benefits based on the performance of the fund. As it now stands, the Jamaican Government is not obligated to make contributions to a national pension until the national debt falls to 60 per cent of GDP, which is projected by 2025-26.

Essentially, pension obligations are met out of the Consolidated Fund and future payments are an implied debt of the government. Dr Clarke, as part of his budgeting, should update Jamaicans on the size of that debt.

Generally, the National Housing Trust is a well-run institution about whose accounts its auditors have no serious queries . The Trust often vigorously pursues private-sector contributors for arrears. Dr Clarke, in his update, should disclose if, and to what extent, the Government is overdue, and by how much, in remitting its own and its employees' contributions, which some analysts suggest runs into billions of dollars. These arrears are not immediately obvious in the Trust's financials because of the use of a cash, rather than an accrual, accounting method. He should also detail the state of refunds owed to individuals and private companies in withheld taxes from investments.

It's all part of cleaning up the books.