Editorial | Support jobs with NHT payment holiday

FOUR YEARS ago, the Caribbean Policy Research Institute (CAPRI) made what was considered a radical proposal about the funding of the National Housing Trust (NHT), the quango set up 44 years ago to finance homes for Jamaicans, especially poorer ones.

The NHT gets most of its money from a five per cent payroll tax – three per cent paid by employers and two per cent of the incomes of employees. The latter is refundable after seven years at a low interest rate. The NHT also earns interest on its mortgages and other investments.

CAPRI, a private think tank, suggested that the Government could cut the employers’ contribution to the agency by a third and completely discontinue the ‘loans’ by employees for several years without any impact on the NHT’s capacity to deliver homes, judged against its performance over the decades. The Trust, though, CAPRI said, would have to make some adjustments to its operation.

“ … The Trust actually requires far less money than it currently receives,” CAPRI said in its report. “The NHT’s present level of housing construction and mortgage financing remains feasible if employer contributions are reduced to two per cent and employee contributions are eliminated entirely. At that level of contributions, the NHT is infinitely sustainable.”

Against that backdrop, the three per cent of the country’s wage bill that would go to the coffers of the quasi-autonomous organisation could “either be left in the pockets of employees and employers (to boost disposable income and profits)”, or it could be diverted to income taxes “to support the programme of fiscal consolidation”.

In the current environment, CAPRI’s proposal, with a twist, should hardly seem as heretical to critics as it did in 2016.

What if firms were able to forego the tax for, say, three years, using the savings to help protect employment or the business’ recovery from the COVID-19-related economic fallout?

The NHT was launched at a time of severe housing crisis in Jamaica, and as CAPRI pointed out, was expected to skew its benefits to the people who, normally, could not afford decent homes. It has not worked that way. For despite the agency’s many innovations and lower-than-market-rate mortgages, the poorest of its contributors generally earned too little to tap into its finances.

Indeed, between 2008-09 and 2013-14, people in the highest band of income to which the NHT catered received 48 per cent of its mortgages. Those in the lowest band got 23 per cent. The middle band received 29 per cent.

NHT’s Lending Adjustments

The NHT has made several adjustments to its lending regimes since that analysis, but there are not many signs, as yet, of a major shift in the numbers. Nor is this likely to happen in the short term, given the COVID-19 -induced slump in Jamaica’s economy, which the International Monetary Fund (IMF) says will shrink by 5.6 per cent this year.

Indeed, several thousand people have lost jobs in the collapsed tourism sector, with a knock-on effect on other industries. The economic shrinkage is worsened by the Government’s limit on commerce and other activities in its bid to slow the spread of the COVID-19 virus.

Haemorrhaging firms have either furloughed employees and/or imposed wage cuts. For those staff kept on payrolls, firms are obligated to make NHT contributions and other statutory payments although in the hotel sector, the Government has offered limited, short-term payroll support for staff kept on the books.

A restructuring of the NHT in the context of the CAPRI analysis should be on the agenda. However, a medium-term holiday from contributions to the agency might be a sustainable approach to supporting employment without the stress on the national Treasury. And it would be easy to do.

In 2017-18, the latest period for which data are available, the NHT, which had assets of J$275.5 billion, drew $17.5 billion from employers, and, perhaps, another $14 billion from employees. Its accumulated employee fund was J$199 billion. Giving back this cash to firms and individuals could generate a fair bit of stimulus – and jobs. And without damage, as CAPRI pointed out, to those who are already on the margins of the agency.