by Richard W Duncan
Borrow and pay in full and in a timely manner — there is no increase in the public debt.
There have emerged 2 fully crystallised approaches to funding the arrears of pensions and gratuities arising from Justice Glasgow’s ruling. One approach is rooted in compassion, dignity, love of humanity and country; the other is not.
In truth, in fact, and in law the arrears of pension and gratuity is a debt (an amount due and owing). It is an addition to our stock of public debt as defined in the Fiscal Responsibility Act (Act 29) of 2015. So, the public debt has already increased by the full amount that is due and owing as a consequence of the judgment; and is a charge on the Consolidated Fund.
This component of the public debt i.e., the amounts that are due and owing to the retirees should be settled in full and in a timely manner. These retirees, as lenders to the state, are old and ageing persons in dire need of their monies. They are persons robbed of their dignity and stripped of their pride.
Should the fiscal authorities borrow from the financial system, this new (substitute) set of lenders (banks, insurance companies, social security schemes, private investors etc.) will replace the current lenders i.e., the old, ageing and dying retirees. Now, these new (substitute) lenders can wait to get back their money. They are not ill with mounting medical bills or treatment they have to go without; they are not bedridden, or have houses in dire need of repairs or retrofitting for wheelchair access or grandchildren for whom they want a future much better than theirs. These substitute lenders are entities and individuals who can rent out their money to the state and wait to collect it later.
Therefore, the fiscal authorities should raise the money from those who are in the business of lending, not from retirees who justly deserve to live out their evening years in dignity free of torment and botheration. The stock of public debt will be unchanged and the country, economy and society will be better off for it.
Most importantly, intellectual brinksmanship is not on when it comes to public finances. The Glasgow judgment demonstrates the folly of such behaviour. Since 1985 Public Administrators and Policy Analysts knew or verily believed that the Pension Disqualification Act could not stand. The hope among some was that the ‘problem’ will somehow go away. On that notion, all manner of manoeuvers and machinations were manufactured to the cause the ‘problem’ to go away — it did not — and now the chickens have come home to roost.
There is a matter which flows from the judgment which sets the stage for another episode of intellectual brinksmanship, of intellectual dishonesty, denial and tomfoolery. That is whether and to what extent interest can and should accrue on the monies due and owing to retirees.
In the simplest of economic and financial considerations, the answer is ‘yes’, since with the passage of time, inflation erodes the value of money, and interest on the amounts due and owing compensates for that. Also having not received their money since 2012, retirees have postponed ‘current consumption’ during that period 2012- 2022, which has to be rewarded, in the form of interest payments. On the basis of fairness and ethics the answer is also ‘yes’ — it is downright wrong, even callous to the extreme to unlawfully deprive or deny someone their just due for a prolonged period of time, without compensation.
However, the posture of the state on issues like these is, “It’s a matter of law, so let’s go to court.” Now, legal proceedings are costly and lengthy — one side wins, the other loses, and the state seldom ever wins. Even more egregious is that the cost of these losses is paid for by the taxpaying public whose interest and welfare the state should protect and promote, rather than destroy and down-press.
The resolution of matters between the state and the citizens must always be within a framework of, ‘What is the right thing to do?’, ‘What is fair in the circumstances?’ and ‘What is ethically correct?’
Once we frame a problem in legal terms, we must bear in mind that for every legal question there are as many correct answers as there are lawyers…that is, until the matter reaches the court and the judge(s) rules.
As I have argued elsewhere, “The reality is that these arrears constitute a debt — a charge on the consolidated fund. Therefore, it is fiscally prudent and economically wise to raise the cash from the financial system on the most favourable terms possible, especially interest rate, and settle the debt to the retirees. The economic spin-offs will be significant. Additionally, should the retirees move the court to award interest on the debt which has arisen from its ruling, that interest rate could be as high as 6%.”
Therefore, the fiscal authorities should borrow the money, settle the matter in full and in a timely manner. There is no need to drag this out by embarking on another episode of intellectual brinksmanship only to end up in a worse-off situation — 37 years (1985-2022) is a long time to be in the school of experience, and still not learn.
A parting word, it may seem to take an eternity, but the chickens always come home to roost!
Richard Duncan is a retired banker and former Accountant General, and Deputy Director of Budget & Fiscal Policy in the Ministry of Finance, Grenada.