Reforming The Bahamian “Social Security” System

Social-Security-reformThere have been three recent developments that suggest the Bahamian “social security” system needs reform and needs it now: 1) The IDB recently canceled a loan program support Conditional Cash Transfers at the Ministry of Social Services citing, “woeful project management and execution was the main reason for the failure;” 2) There is a $3.7bn unfunded civil services pension liability, a ticking time bomb that could sink the Bahamian economy; 3) The 4.5% hike in the VAT rate, a regressive tax which disproportionately affects the poorest and most vulnerable in Bahamian society.

This great piece in The Economist not only give us some insight into the ideology and history that underpins social security and welfare systems but may clue us into how we can alter our own system to better serve the public. I’m not an economist but here are three examples of the possibilities:

Whole-of-Government Reform: The budget for the Min. of Social Services and Urban Development has been increased, but will social services spending become more strategic? Most people see welfare spending as a drag on the national finances but, when targeted, welfare spending can lead to growth. A prime example of this is funding childcare for families, especially single mothers. Evidence suggests that subsidizing childcare is growth-friendly because it allows women to join/stay in the labor market. Working together with the Min. of Education, by subsidizing childcare, we can not only provide greater opportunity for women but also implement, regulate and monitor a more rigorous early childhood education program, preparing our future citizens for further education and eventually for the global marketplace. Early childhood education is key to improving education outcomes across a person’s life.

Absorbing Young Migrants: Migrants are also often seen as a drag on the economy for using the services provided by the government without paying the taxes that support them. Bahamians have been resistant to permanent residency and citizenship reforms for this very reason. Immigration is a challenge to the welfare state, but also a possible solution. Research has shown that migrants in the EU “migrants have contributed much more in taxes than they have cost in public services.” By absorbing young migrants, in particular, we can expand the tax base and increase government revenues to address issues like the unfunded civil service pension liability.

Negative Income Tax (NIT): The government has cited the need to increase VAT because of existing national debt. Unfortunately, VAT is a regressive tax, which means it disproportionately affects the poorest and most vulnerable among us. Last year the IMF implored the Bahamas to implement an income tax and Bahamas Institute of Chartered Accountants (BICA) President Gowon Bowe said: “as uncomfortable as the conversation may be, it’s time to start considering an income or corporate tax.” If this is the direction we are meant to go in, considering an NIT may be helpful as a mechanism for improving social security outcomes. “NIT means that, below a certain income threshold, the taxman pays you. As you earn more, tax kicks in, tapering your income.” NIT isn’t a new concept and can replace programs like “food stamps” or housing subsidies.”

This article originally appeared here.

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