Business Page – Threatening the National Insurance Scheme- those defaulting employers

Sunday, July  30th, 2006

Introduction:

The publication in sections of the national press of lists of employers who have defaulted for at least three months in the payment of National Insurance Scheme (NIS) contributions for their employees appears to have generated quite some interest, prompting an editorial and a major article in the Stabroek Business of Friday July 28, and a lead letter in the Stabroek News of the previous day. The letter called for "the culprits" including security services such as Cops Security, UAS & DS and Instant Security "to be sent to jail" while the article dealt exclusively with the staggering sum of $40M owed by UAS&DS in contributions and interest. Shockingly, this company of which leading trade unionist Selo Baichan is a director has up until recently been able to obtain NIS compliance certificates to obtain yet more government work!

Neither the article, nor the letter nor the editorial mentioned that among the defaulters is the law firm of Chapman and Trotman of which Alliance for Change (AFC) Presidential Candidate Raphael Trotman is a partner. Business Page (BP) too may have ignored this as an oversight had the AFC not made social security one of the major planks of its campaign platform - see advertisement inserted in Stabroek News of July 26.

Those election promises:

As it has done for previous general elections, BP will review the programmes of the contesting parties, particularly those with fiscal, economic and governance implications for the country. BP is not unmindful that campaign promises are known often for their extravagance and sometimes for their impracticability but when they emanate from a party that touts change and address something as serious and fundamental as the country's national social security scheme, such promises cannot be ignored.

The AFC, it seems, wants to introduce either through the NIS or some parallel institution, social assistance programmes without any consideration about the cost implications. Does it have any idea what level of contribution it will require of the working population to finance NIS programmes and benefits for the elderly and persons with disabilities, NIS benefits for self-employed parents or an employment assistance programme that provides job training and self-employment assistance? Not that these things are not important, but does the AFC know how much it will cost to implement these plans or does it intend to supplement the Scheme from general tax revenues? If these are to be done through the NIS, it will require not only transforming the Scheme from one financed by contributions and income from investments to one financed additionally by taxpayers, but also raises the question whether the AFC is in favour of huge increases in taxation. Any plan that calls for higher taxes and NIS contributions is not only unlikely to win any support from current employees and employers, but can be considered no more than a mere wish list with little or no chance of success.

Long history:

The recent revelation of the defaulting employers is just another consequence of the unwillingness over the years by successive administrations to address serious systemic difficulties facing the Scheme and which according to its actuaries could cause the Scheme to fail. In order to propel those in authority to take some action Business Page has identified the deteriorating performance of the Scheme under the chairmanship of Dr Roger Luncheon since 1992, questioned the legality of loans to private sector entities, expressed dissatisfaction with the role of private sector directors Messrs Paul Cheong and Maurice Solomon, drawn attention to the benign neglect with which the private sector and the GTUC have treated the NIS, taken issue whether the loan of US$4M for the Caricom Secretariat was an arms' length decision and more recently (BP March 12, 2006) with the roundabout way the Scheme has been compelled to invest in the Berbice bridge.

Business Page has noted that some of these questionable practices are not new for Guyana's national social security system established in 1969 to provide compulsory coverage to the country's employed and self-employed population. During the seventies it became a useful source of funds for the PNC government which practically dictated the terms under which it commandeered the large amounts of funds the Scheme held. More recently, the Scheme's movement into a mature phase has coincided with the government's failure to act on key actuarial recommendations to maintain the Scheme's viability and the government's exercise of an unchallenged authority to use the Scheme's funds as it pleases. We even published statistics showing the mismatch between the government's pronouncements on the economy and the employment data generated by the NIS hoping that the responsible minister would take action. No response.

On March 12, BP noted that the Sixth Actuarial Study of the NIS for the years 1999 to 2001 expressed reservations about the future of the Scheme unless urgent remedial action was taken and that in 2004 the NIS had sent recommendations to cabinet for policy decisions on a number of critical issues. All this elicited was a decision to set up some committee which according to my information has still not been done.

Conflicting numbers:

Part of the difficulties affecting the viability of the Scheme lies in the fact that a number of assumptions underlying the periodic actuarial reviews might not have materialised including the return on investments, expenditure and benefits costs and the necessary changes to the contribution rates. But the difficulties also have to do with the number of persons contributing to the Scheme. A fall in the number of contributors coinciding with an increase in the number of beneficiaries and the cost of the benefits would be a problem for any scheme, and that is something that all contesting parties would need to confront. The data from the NIS show that the number of new NIS employees registered which has been on a downward trend since 1994 continues its descent with 2004 being the lowest since 1990.

Nor do the data show that the large number of persons joining the job market annually have become self-employed registrants. The number of self-employed new registrants in 2004 is less than 20% of what it was when Mr Jagdeo took over as Finance Minister and 87% when he passed on the Ministry to Mr Kowlessar. Business Page has continually asked of GO-Invest, why are investors who are granted fiscal and other concessions not registering themselves and their employees?

Strengthening the laws:

Apart from the weak court system and timidity to pursue defaulting employers, there is the question of inadequate laws to secure the contributions and benefits to employees. I have on numerous occasions recommended to the authorities that certain of the provisions of the Income Tax Act be replicated in the National Insurance Act. For example, the Income tax Act provides in section 93 that PAYE deducted is held in trust and not subject to any attachment in respect of the debt or liability in the event of bankruptcy. Section 101 provides that a certificate of indebtedness prepared by the tax authorities and lodged with the Registrar of the Supreme Court shall have the effect of a judgment debt and the penalty and interest on late payments of quite exorbitant amounts. Had similar provisions been incorporated into the NIS Act, the management of the Scheme would have found it far easier to prosecute the defaulters. But successive governments and parliaments seem far less interested in protecting workers' contributions and benefits than in securing the tax revenues of the state.

Conclusion:

The NIS cries out for attention and will be a major challenge to the post-2006 elections administration. The Scheme is already facing an actuarial deficit which needs to be made good while there is a long list of unmet social needs as identified by the AFC. Having been allowed to fester for so long, the solutions will be painful and will require imagination and some substantial restructuring. Business Page's earlier call for some of the funds freed up by debt write-off to be used to refinance the NIS was never taken up. That does not mean the problems have disappeared. In fact as the new government will find out, they have increased.

(Ed note: This contributor has acted in a pro bono capacity as advisor to the GTUC on Social Security since 1985.)