Commentary: Proposed 84.1% NIB Contribution Tax Hike

First Published: 2009-09-16

Commentary

Proposed 84.1% NIB Contribution Tax Hike:

A recent announcement was made by NIB of a possible contribution tax increase of 2%. At first glance, a 2% tax increase seems bearable. It is definitely better to receive a 2% salary increase, but nonetheless a forced 2% salary decrease seems bearable. However, things are not always as they seem….
 

A Before & After NIB Contribution Analysis:

  • Full-time worker
  • Salary: $600 per week

 

Current Total NIB Contributions:

Contribution Ceiling:  $400 x 8.8% (employer/employee split):

  • $35.20 total per week
  • $1,830.40 total per year

 

After Proposed 2% NIB Contribution Increase:

Contribution Ceiling:  $600 x 10.8% (employer/employee split)

  • $64.80 total per week
  • $3,369.60 total per year

 

Total Additional Annual Contribution:

 

  • $3,369.60 – $1,830.40 =  $1,539.20 additional per year

 

Percentage (%) Increase in Total Contributions:

 

  • $1,539.20 / $1,830.40 = 84.1% tax increase

84.1% NIB Contribution Tax Increase:


So, the government has proposed to increase the total NIB Contribution Tax by 84.1% (not 2%).
As a counter argument, some will say that the NIB contributions are split by the employer and employee, so the burden is shared. While on the surface of things this is true, it is far too simplistic a view.

Any increase in the NIB contribution tax will definitely have negative side-effects, three prominent side-effects will be:

1)  "Anything Taxed is Discouraged Proportionately":  Employers will be less willing to employ full-time Bahamians; instead going without additional staff, pushing existing staff harder, outsourcing to foreign workers (where they don’t pay the NIB tax) or hiring part-time/contract Bahamian workers.

2)   "Real Income Eroded":  Workers will find the value of their real income eroded. If an employer can afford to pay $30,000 in total compensation for an available position, the cash salary of the employee will be reduced by the additional NIB Contribution Tax increase.
 

3)  "Black Market": Workers and Employers will seek ways to avoid the NIB Contribution Tax, which paradoxically will result in stagnant or lower NIB revenue increases than expected.

 

The Nassau Institute’s Philosophy:

Why do we need a system where current workers pay for current retirees?

An individual person, extended family or tight-knit community will do a considerably better job keeping their NIB contributions and looking after themselves, their friends and their loved ones.  Especially, when compared to an inefficient and politically driven government bureaucracy like NIB.

Contributions paid by individuals should be held in their name with any interest earned until his or her retirement. That way, future generations will not be hamstrung by a failed National Insurance Board scheme.

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