Introduction:
The government has taken the bold step of announcing in principle an intention of ploughing Bds$800m into building a new hospital. Like the curate’s egg, this is good in part, but it also sends a lot of negative messages about the management of the fiscal and current account deficit and the much-needed urgency of a radical restructuring of the economy.
In simple terms, Barbados is importing more than it exports and this must be reversed if the economy is going to be rebalanced. This is the major challenge for the minister of finance and the governor of the central bank. So far, they have done nothing substantial about this deep structural problem. At the same time, with high unemployment – 12 per cent and rising – and presumably with jobless youth (16-24 yr olds) accounting for the bulk of that number, government must look seriously at the medium to long-term repercussions of the build up of such a social problem. For example, we know that if young people do not enter the jobs market within a short time of leaving school, the problem of joblessness will remain with them for the rest of their lives.
And, we also know, from the global longevity figures, including that of Barbados, people are living longer and, with that, spending nearly a third of their lives out of regular work. Let me explain that: if a young man or woman enters the jobs market at the age of 22, and works to the age of 67 before reaching retirement, that person has on average a further 16 years or more receiving a state pension before dying. We also know that living longer does not necessarily mean living a healthier life, especially as one ages. Ill health and pensioner poverty are the two things most likely to impact on pensioners.
But Barbados faces two particular long-term health problems. First, it has one of the highest HIV/Aids infectivity rates for under-twenty fours in the world, which, apart from the cost of retroviral treatment, will have a heaven burden on health budget. Likewise, type-two diabetes is the elephant in the room in Barbados, due mainly to lifestyle and diet. Apart from the long-term eye, kidney and orthopaedic problems, we now know that diabetics, like HIV sufferers, are very susceptible to tuberculosis. Again, this will have a huge cost.
So, given this, the state faces a massive health cost of beneficiaries living longer, health care and a growing bill for long term care. We also know that about 70 per cent of school leavers are leaving school without five or more CXCs at grade C or above, so they are unlikely to enter the professions. This is a simmering social problem. Further, we also know that, apart from mortality drag, high unemployment also affects revenue in terms of direct and indirect taxation. Unemployed people do not pay income taxes and are unlikely to pay much VAT. This growing social dark cloud poses a threat of intergenerational conflict if the younger generation sees the baby boomers grabbing everything for themselves and denying them even the crumbs, as we already see in Greece.
Let us deal with the ethical nature of this social threat first: at the very least, members of parliamentary owe it to themselves and the nation to at least take a salary cut as a gesture, to show the nation, especially those young people, that they feel their pain. But such gestures are not enough. We have a system in which any individual being elected to parliament for two full terms automatically becomes entitled to a full pension. This is a scandal. What is really needed are policy changes to deal with these and other anticipated social problems. One way of tackling this is to make all entry level public sector jobs part-time for those under the age of 24, on the principle that it is better to have a part-time job than no job at all. At the same time, government should raise the statutory school-leaving age to 18 – with the final four years for the non-academic in training or some vocational education – at one end, and at the other encouraging, incentivising, those nearing retirement to gradually work their way in to retirement by first reducing their working week to four days, without loss of pay, then three, then two, with the extra time being taken up by school leavers.
Government should also incentivise the private sector to act similarly, maybe by having a payment holiday for national insurance, or even an income tax break. Of course, this is not a comprehensive restructuring plan, it is simply an appeal to the movers and shakers to set an example to the rest of the nation.
Greed:
There are further examples of this collective greed, as the nation goes down the pan, much of it is bureaucratic bungling, partly incompetence and then there is corruption, by accident or design. Bureaucratic bungling is to have over 20 different public sector pensions, a good ten of those alone affecting teachers. Incompetence is to pass a Pensions Act in 2003 and the pensions regulations in 2011. It is like making a motor vehicle in one year and the petrol or electricity to drive it seven years later. Then there is corruption.
Let us deal with a hypothetical situation to explain this one: say, for example, that person A has had a long career as a lawyer, say rising to the dizzy heights of Chief Justice. Then on retirement s/he becomes Governor General, with a pension entitlement of 100 per cent of salary. So, Person A is already receiving a full 100 per cent of salary as pension as Chief Justice then, after a few years as Governor General, is entitled to a further 100 per cent of salary as pension – two pensions at a substantial amount. Or say, for example, person B, who has had a full career as governor of the central bank, retires on a substantial pension (the Central Bank Act is unclear) and takes up a diplomatic post in Switzerland which, most likely, will entitle the holder to a further pension.
Or, the most unethical of all, the entitlement of a pension after two terms as a member of parliament. So, for example, let us assume a young person, say aged 40, gets elected to parliament, is returned at the next general election, as is the custom in Barbados, but is dropped by his or her constituents at the third General Election. That MP would be about aged 50. He or she would then be entitled to a pension for, if s/he lives an average life, a further thirty years. Of course that would be dishonest. No doubts so many people want to be members of parliament, it is a career choice and not one of serving the community.
What is really needed is a comprehensive overhaul of the state pensions system, including all workers,private and public, with a career-average pension at the end of a working life. This means if someone has worked for an average of 45 years, rising from as junior to as senior position, his/her salary will be averaged out over that working life to determine his/her pension. If that person wants to take out a personal pension or, God forbid, an annuity, then he/she is entitled to do so. But the state pensions should be ring fenced. With members of parliament, Governor Generals, Chief Justices and other high office holders, on leaving office they should receive a resettlement grant, say up to six months’ pay, then they are on their own.
Analysis and Conclusion:
A small nation like Barbados cannot afford to carry this dead weight, even of people who have served the nation well. Unless those at the very top respond to the urgency of the economic crisis, there is very little incentive for the hard-pressed to do so. If as a nation we want to see how to organise a new state pension, just look at the Chilean model, of the Kiwisaver, the Australian superannuation, the UK’s NEST or the US’ 401(k).
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