Tag: Old Age Pensions

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The tax exemption of the president’s pension package is an abomination

The defenders of the Former Presidents (Benefits and Other Facilities) Act 2009 including Prime Minister Sam Hinds, Dr. Roger Luncheon, Mr. Robert Persaud and now Dr. Nanda Gopaul are having a hard time trying to convince the Guyanese taxpayer that President Bharrat Jagdeo was less than greedy in initiating and approving legislation providing for benefits that are patently overgenerous.

The best that Mr. Persaud could do was question the timing of the questions, seemingly unaware that as far back as May 2009 Prime Minister Sam Hinds was vainly defending the Act with misrepresentations.

Mr. Hinds incorrectly wrote that all Mr. Jagdeo and his spouse would have is a single vehicle owned and maintained by the State. In fact Mr. Jagdeo is entitled to an unspecified number of such vehicles with drivers. In addition, Mr. Jagdeo is also entitled to duty-free concessions for motor vehicles and every other item he chooses to import. Mr. Hinds would also wish us to believe that free medical expenses are limited to the former president and his spouse. In fact taxpayers would have to pay for the medical costs for him and the dependent members of his family, for the rest of his life. And if Mr. Jagdeo or any one of them opts for treatment abroad, no big deal – the Act places no restriction.

Dr. Luncheon and others have been saying that all the Act did was to put into law payments made to former presidents, completely forgetting that neither Burnham nor Jagan lived to become former presidents.

With a slight twist Dr. Gopaul then tries to confuse the issue by listing eight types of expenses that former presidents were entitled to but fails to state what they actually received which is the real concern over the Act. What Dr. Gopaul seems to miss is what the parliamentary opposition and civil society have been saying all along, i.e. that there are no caps to any of the facilities; no conditions for receipt of benefits and no consideration of cost.

A former president working abroad is still entitled to tax-free pensions and most if not all the benefits and facilities permitted under the Act. And even if resident, s/he is entitled to clerical and technical staff even for private consultancy work, and can run up the most outrageous utilities bill for electricity, telephone and water to be paid for by the state. As drafted, the legislation would seem to impose on the state all the costs where the former president decides to have two or more residences. And we know from the advertisements, our soon-to-be former President is actually constructing on the sprawling state-owned land he awarded himself two houses and a distinctly un-low carbon hot and cold swimming pool for which the monthly electricity bill will easily run to $600,000. We will pay for all of that.

Even while visiting friends that individual likes to travel with an entourage often consisting of five vehicles and several staff providing security. If he is unwilling or unable to give up such show of power and influence, we the taxpayers will pay for them too, including overtime late into the night.

We may take some comfort in the two services that seem to be limited in number – the gardener, though even that could be circumvented by retaining a landscaping service, and an attendant. And if the soon-to-be former president joins one of his buddies in business or enters in business in name, either on his own account or for their benefit, all the income will be tax-free. This abomination has no parallel or precedent anywhere in the world and is deserving of its own Champion of the World Award.

The menu of benefits and facilities hardly seems what the Constitution intended as payments to former presidents when it states that “A person who has held the office of President shall receive such pension or, upon the expiration of his term of office, such gratuity as may be prescribed by Parliament. Any such pension or gratuity shall be a charge on the Consolidated Fund.”

One is forced to wonder whether the attempts by Hinds, Luncheon and others to confuse the public about the contents and consequences of the Act really show their inability to defend its inherent obscenity. What one does not have to wonder about is the frightening disregard for rules and cost on the one hand, and the interest of self on the other, which are symptomatic of how the PPP/C has been managing the financial resources of the country.

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Over-budgeting or underpayment of public sector wage and pension increases

Introduction
In his presentation to the National Assembly of the 2011 Budget on January 17, Dr Ashni Singh announced that public assistance was then being paid at a rate of $4,900 per month to approximately 9,000 beneficiaries. He went on to announce a 12% increase to $5,500 per month from February 1. And in the same speech, he announced that “in like manner,” old age pensions then being paid at a rate of $6,600 per month to approximately 42,000 pensioners would be increased to a rate of $7,500 per month, a 14% increase. Even allowing for the word “approximately,” the information was specific enough to allow for a reasonable calculation of the total cost – inclusive of the announced increases – of $4,330 million, made up of Public Assistance of $590 million and Old Age Pension of $3,740 million.

But the 2011 Estimates themselves tell a very confusing story which could easily mislead readers. What is clear however is that a one-line item from page 21, Table 9 of the 2011 National Estimates accounts for the entire year’s pensions cost – without the need for any further increase. Yet, there is a provision for increased pensions of $2,106 billion or 31% of the year’s pensions cost, exclusive of the increase. To emphasise, the increases are already built into the non-statutory pension cost and there ought to be no further provision, unless of course tens of thousands of persons suddenly become eligible for pensions! I would unhesitatingly dismiss any suggestion that the provision relates to persons in receipt of statutory pensions and gratuities since that would amount to an increase of nearly 100%!

Moreover, there was no indication in the announcement by GINA that those in receipt of statutory pensions would also receive the 14% increase, usually intended for persons classified as vulnerable. But even if one charitably assumes that they too will share in the 14% previously announced, the increase is still only $325 million, leaving a huge amount to be accounted for.

Padding
The situation is no different in 2010 or indeed 2009. Unlike wages and salaries, OAP and Social Security are not subject to any negotiations, and any proposed increases should be included in the year’s budget, or explained somewhere in the budget. Indeed any uncertainty would be removed if Dr Singh would comply with the requirement of the Fiscal Management and Accountability Act that the assumptions underlying the budget should be stated. Without subscribing to any conspiratorial fear, for the Minister to do this might expose the budget to some of the padding that takes place, allowing for “authorised” slush funds, many of which are controlled by the Minister of Finance and his President.

This is more than a procedural or presentational point. It is about serious and substantial over-budgeting while somehow the government still manages to utilise the full amounts budgeted. If this is indeed a case of utilising over-budgeted funds, it would compound questions asked about Ms Manickchand’s pensioners‘ register, which has been the subject of adverse comments in a report by opposition parliamentarian Sheila Holder, and me in the letter columns.

According to Mrs Holder that register may contain as many as 17,640 phantom persons, with an annual loss to the state of over $1.3 billion. My estimate was higher because I applied the law strictly which would eliminate those returning Guyanese who have not been here for the minimum period specified by law and those persons who on account of assets and income would not qualify for the receipt of pension.

Wages
Let us now turn to similar provisions for wage increases. It took the Guyana Information Agency rather than the Accountant General or the Secretary to the Treasury to report the President’s announcement of his pre-elections wage increase for public servants. According to GINA, the “8 percent increase is payable to all public servants and members of the disciplined services, while teachers will get a 3 percent across the board hike with effect from 1st January 2011 on top of the 5 percent increase previously paid by Government with effect from the same date in accordance with the multiyear agreement concluded between Government and the Guyana Teachers Union.”

Here is a summary of the estimates raising similarly disturbing questions as they do in relation to wages and salaries.

WAGES AND SALARIES EXTRACTS 2011

Source: 2011 National Estimates

Affordability
What seems clear is that the government can afford to pay much more than the 8% that it has announced. Forget for a moment that as the employer and tax collector the government gets back 33.33% of any wages and salaries it pays to taxable persons. And forget too that the so-called contract employees like Ms Teixeira, Reepu Daman Persaud and Odinga Lumumba have fixed remuneration contracts and would therefore not be entitled to the 8%. The allocation in the Estimates for revision of wages and salaries in the 2011 Budget allows the government to pay a minimum of 13% to all public sector employees, or 17% if the contract employees are excluded. And since the government gets back 33.33% of what it pays out as remuneration, it can afford to pay as much as 20% to 25%, depending on whether it excludes or includes the contract employees.

Readers will recall that the increase announced in 2010 was 5% when the National Assembly had approved increases equivalent to anywhere between 10% and 13%. No one knows how the substantial difference of about $1.2 billion was spent. The only certainty is that it was spent.

Similarly, in 2011, a payment of 8% will leave the government with a hefty surplus or slush fund of about $1.5 billion.

Poor oversight
While the unearthing of some of the missing information requires some kind of detailed investigation, the public sector unions and especially the Public Service Union have been in the business long enough to alert themselves to the fact that the government might be shortchanging them. They ought to be aware that given the attitude of the government to its own employees, public servants deserve strong leadership from their unions.

The teachers too, have perhaps as weak a leadership as ever and one recalls their President Mr Colin Bynoe describing a 5% annual increase over the next five years as a “giant step.” One wonders whether he thinks President Jagdeo has made a giant leap of benevolence or has convinced him of what many felt when he accepted the five year, five per cent annual increase for his members. While he might have been overwhelmed, what is unforgivable is that his union might not have been aware of the budgetary allocation for public sector employees, including teachers.

But let us not blame the unions alone. What about the parliamentarians, including those sitting on the Public Accounts Committee which is chaired by an opposition member? They should be challenging rather than following the tepid report of the Auditor General who seems to see no evil even in the most glaring impropriety. That the Estimates are so unfriendly to readers and incomprehensible to most persons should suggest to them that they should ask probing questions, seek independent advice and ensure that they are capable of doing the job the taxpayers of this country pay them to do.

Hopefully, the next parliament will do a better job.

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There is a gap of between 15,000 and 19,000 who are paid the Old Age Pension but are not entitled under the law

Minister of Human Services Ms Priya Manickchand behaved with apoplectic rage in response to a conclusion in a report by her parliamentary colleague Mrs Sheila Holder that the number of persons to whom the Old Age Pension (OAP) is paid is inflated by 17,640 (phantom persons, according to Mrs Holder) with a loss to the state of over $1.3 billion.

Ms Manickchand reacted badly too to a cartoon in the Stabroek News of January 27 depicting her unflatteringly, prompting a letter by her which appeared with another by Mr Ivelaw Henry, her Chief Statistical Officer, both on the same day in the Stabroek News (Saturday, Jan 29) challenging Mrs Holder’s numbers. They both cited in support of the numbers being challenged projections done in November 2006 by a Mr Sonkarley T Beaie, who is described as a UN demographics expert and the holder of an MPhil, perhaps with a view to impress us.

To understand the conflicting positions, it is convenient to address three separate but related issues – statistics, the legal framework for the payment of OAP, and the arrangements in place for the payment of Old Age Pensions.

The most recent census done in 2002 shows the following data in relation to persons 65 years and over:

Between censuses, the country’s mid-year population is tracked by the Bureau of Statistics from data on births, deaths and migration, and is reported on in an appendix to the annual Budget Speech by the Minister of Finance. This is what the Bureau of Statistics reports for the years following the 2002 census: 2003 – 752,500; 2004 – 755,100; 2005 – 757,600; 2006 – 760,200; 2007 – 763,200; 2008 – 766,200, 2009 – 769,600, 2010 – 777,900.

One must always be cautious about population data and even more careful about making assumptions from them. I therefore wonder why instead of taking the actual population figure Mr Henry and his Minister chose to rely on Mr Beaie’s increasingly incorrect projections which for total population in 2010 were “wrong” by 10,000. It is fair to say that any major change in the characteristics of a population – other than through migration, a plague or a baby boom – takes place very slowly. From 1980 to 1991 the shift in the over 65 age group was a 0.16 percentage point and from 1991 to 2002 it was a 0.12 percentage point as shown in the table above. Even if we generously assume that the percentage of that group as a percentage of the current population has climbed to 4.5%, the maximum number of persons eligible for OAP would be approximately 35,000, or 7,000 less than the “around 42,000” the Minister of Finance referred to on more than one occasion in his Budget Speech.

That is not the end of the story, since not every person 65 and over is entitled to OAP. The Old Age Pensions Act sets as the conditions for eligibility for OAP that the person must have: (a) attained the age of sixty-five years; (b) been a citizen for ten years; (c) been ordinarily resident in Guyana during the last twenty years; and (d) passed a means test based on income and assets. Therefore any returnee to Guyana before 1991 is not entitled to a pension because of condition (c) and many if not most of the senior citizens living in Courida Park, Queenstown, Pradoville, Oleander Gardens, Republic Park, former senior public servants, professionals including doctors and lawyers, etc, are not entitled under condition (d).

We all have and know of countless others of our friends and relatives and their parents who do not claim Old Age Pensions. These would include persons 65 and over in the population not entitled to on account of their income and/or assets, plus those who are entitled to but do not claim because they do not know they qualify, plus those not entitled because they returned to Guyana less than twenty years ago. Those probably number between 8,000 and 12,000. To get to the number who meet all the tests, we need to deduct these from the maximum, theoretical 35,000, leaving between 23,000 and 27,000 persons who are entitled. This means that there is a gap of between 15,000 and 19,000 who are paid, but who are not entitled to the pension under the law.

At the current rate of $7,500, between $1.4 billion and $1.7 billion is being paid out unlawfully each year.

A recent Value-For-Money audit done by the Audit Office identifies a host of accounting and audit issues that could have given rise to the wide gap.

While the Audit Office must be commended for undertaking the exercise, it is regrettable that it did not attempt to put in dollar terms the range of values involved in its findings, and that it did not look at the related public assistance programme that is subject to even fewer rules and is more politicised and corrupted.

Let us put the calculation into perspective. If Old Age Pensions were paid only to persons legally entitled, then each pensioner could easily receive another $4,000 to $6,000 per month out of the money allocated in the 2011 Budget.

Ms Manickchand should now be willing to make her list publicly available for scrutiny.