KINGSTOWN, St. Vincent – Opposition Leader Arnhim Eustace expects Prime Minister Dr. Ralph Gonsalves to increase National Insurance Services (NIS) contributions, the retirement age, and a new property tax regime when the 2012 budget is presented in December.
Eustace, an economist, told supporters of his New Democratic Party (NDP) at a rally in Overland last night that the NIS has been weakened by potential losses in the failed British American Insurance Company.
The NIS invested EC$62 million in the failed enterprise and the former finance minister said that the social security institution has to treat the monies as a loss.
He added that if the NIS, which returned an EC$22 million profit in 2010, writes off 50 per cent of the compromised investment, it would make a loss for the first time.
“And that is what will happen in the year 2011,” Eustace told party supporters.
He said that Gonsalves’ Unity Labour Party (ULP) administration would have to respond by increasing the rates of employer, employee, and state contributions and upping the retirement age from 60 to 63, or 65.
“That is the reality and I am saying it to you tonight, that will be in Ralph Gonsalves’ budget at the end of this year.
“… There is no way that they are going to be able to avoid that. They could twist and turn however they want; they gotta do it,” Eustace said.
He further suggested that employee contributions could be increased from 3.5 per cent to 5.5 or 6.5 per cent of their salary.
“… because they have to find some way of getting back that money and making sure that over the years … that the NIS can still continue to pay people’s pension or death benefit, as the case might be,” Eustace explained.
In his 2011 budget speech, Gonsalves, who is also Minister of Finance, said that while the NIS had EC$432.1 — 23 per cent of GDP — in reserves at the end of 2010, the ratio of pensioners to contributors was only 13 percent.
He further said that the financial health of the NIS would deteriorate as the system matures, explaining that it had a low contribution rate, a young retirement age and generous replacement rate in comparison to other countries in the region.
Gonsalves told Parliament that the current structure of the National Insurance Services and the Public Services Pension System are clearly unsustainable.
The reform options, he said, included a gradual increase
in the contribution rate for the long-term benefit branch of the NIS and a gradual increase in the retirement age to 65 years.
Eustace on Tuesday also speculated that the government would increase property taxes next year.
Gonsalves also addressed this issue while presenting this year’s budget in January.
He said the government had revaluated all properties in the country with the intention of introducing a market value base assessment to replace the annual rental value assessment.
However, “significant legislative changes” were required to introduce the new system, and the government continued with the old system even as it “updated the assessment for all properties to reflect the increases in rental values since the last valuation in the 1990s,” the Prime Minister said.