Premier: FFR needs review

| 27/06/2013

(CNS): Overly ambitious targets to cut expenditure that were agreed by the UK and the previous UDP government have "unintentionally stifled the rebound in the Cayman economy”, the new premier said this morning. Addressing the Legislative Assembly before Finance and Economic Development Minister Marco Archer brought the interim budget motion to the House, Alden McLaughlin outlined government’s medium to long term economic strategy to reduce expenses in a “gradual, phased approach” without causing economic or social harm and to the islands. “We stand behind the Cayman model of taxation and do not support the introduction of income tax, payroll tax, property tax or value added tax,” the premier stated.

The Progressive administration agrees with the underlying policy principles of the Framework for Fiscal Responsibility (FFR) set out in the Public Management and Finance Law, such as improving medium term planning, delivering value for money, more effective management of risks and improved accountability, McLaughlin said.

However, he said the four year financial plan agreed last year between the UDP government and the Foreign and Commonwealth Office as part of the 2012/13 Budget approval set “very aggressive targets” for reducing expenditure and capital investment while growing revenues “at a rapid rate” to comply with certain financial targets by the end of the 2015/16 financial year. 

“We believe that these targets are overly ambitious given the short timeframe set for compliance and have stifled the rebound in the Cayman economy,” the premier said. “We believe that a more gradual, phased approach should be taken regarding the timeframe for compliance as the achievement of compliance must be balanced with the need for the government to implement measures to stimulate sustainable economic growth and diversification.

“In my opinion it makes absolutely no sense for the government to go about improving its financial position while ignoring the economy. This would put the livelihood of our people; education of our children; healthcare; infrastructure; personal safety and everything we enjoy today in great jeopardy.” 

Referring to the recent meeting in London with FCO officials, the premier said the Cayman delegation “notified them of our intentions to develop a revised medium term fiscal plan for the Cayman Islands and they have indicated their support of our actions in this area.” He said this revised plan would be developed as part of the 2013/14 Budget process and presented to the LA with the substantive 2013/14 Budget in September.

“The government is currently a major player in the economy and if expenditure reductions are not managed carefully there could be significant negative shocks to the Cayman economy which can quickly compound and create recessionary pressures – something that we want to avoid as best we can and not to bring on ourselves,” McLaughlin explained.

The FCO has called for a quick reduction in the number of public servants, but while there “scope for some reduction”, he said, “we cannot just cut the number of civil servants with the stroke of a pen in order to meet some arbitrary target.  Any reduction must be managed so that we do not negatively impact services to the public or add to the social ills of the country.” He said the Cayman government had agreed to reduce the size of the civil service through natural attrition and strict review of all contract renewals, a policy that has been applied by the deputy governor over the past year and has “stemmed the growth in the civil service”.

The premier said the government would be “critically examining” the various statutory authorities and government-owned companies to see how to improve their financial performance. “We are not going to rule out possible divestment or restructuring of these entities but will make sure that any decisions in that regard will be done the properly with transparency, consultation and appropriate analysis,” McLaughlin said.

Regarding the management of public debt and achieving sustainable revenue flows, government’s existing debt portfolio “should be refinanced in a way that creates a clear path to pay down and extinguish debt in a structured and affordable manner. Where possible and financially feasible we will implement a strategy to move away from interest-only bullet bond type borrowing instruments,” he said. “For any remaining non-amortizing debt we will establish a sinking fund to enable us to pay off those debts in fullwhen they mature. Doing so will create a greater level of comfort and certainty in terms of the country’s ability to meet the debt obligations when they become due.”

Government revenue measures should generate cash for government operations without unnecessarily burdening private society “to the point where it discourages investment and economic growth. We stand behind the Cayman Model of taxation and do not support the introduction of income tax; payroll tax; property tax or value added tax,” the premier stated.

Reiterated  the PPM’s election promise to introduce minimum wage legislation “as soon as practicably possible”, he said, “We must have an economy that allows each and every Caymanian the opportunity to obtain employment with an appropriate level of remuneration that they can support themselves and their families.” 

In the medium to long term, government has identified “two critical and significant infrastructure development projects which need to be done as quickly as possible: the Grand Cayman Cruise Ship Berthing Facility and the Owen Roberts International Airport Redevelopment.” McLaughlin said, “Both of these projects are crucially important to the continued viability of the very important tourism sector of our economy and will positively impact the wider Cayman economy in both the short and long term once implementation gets underway.”

He also noted the possibility of another major infrastructure project, which would be a public private partnership, and if it came to fruition will serve as a catalyst for economic development in the eastern districts of Grand Cayman.

“The Cabinet is committed to following all due processes to ensure proper design, planning, financing, procurement and implementation of these projects to ensure that value for money is maximized and the desired economic outcomes are achieved,” he stated.

Last year, the UDP government made the decision to eliminate or significantly reduce the renewal of property insurance on the assets of core government and statutory authorities and government-owned companies, along with the renewal of the catastrophe risk insurance facility or CCRIF, without implementing alternative risk transfer mechanisms, the premier said. 

“My Administration has taken the decision to reinstate these protections as they are necessary to help safeguard the country from the financial risks associated with the unpredictable loss or damage to our assets,” he said. “Let us not forget the lessons of Hurricane Ivan or Paloma. Many individuals and businesses are still dealing with the financial impact of these events and the current state of public finances with low cash reserves and prohibitions on borrowing does not leave much ability for the Government to deal with the aftermath of such events.”    
 

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  1. Anon says:

    Be careful Alden. You are right in thinking-whatever the demonisers of government on this site think -that crippling the public sector suddenly would have very serious negative effects on our type of economy. But look at what Osborne is doing in Britain. There are only a few sacred cows which seem to avoid the continuing cuts he's making – eg the NHS and overseas aid to dictators to preserve their corrupt rule because Britain has this guilt complex about the Empire………..oh sorry, I meant to say aid to assist struggling third world peoples. Pensions and benefits for civil servants, though, are fair game despite the trade union gripes and like Thatcher he will  have to keep going if he wants to make a real impact. You need to do the same, agreed, over time, not instantly but do it. And that includes Turtle Farm and Pedro and Cayman Airways and so on and so on. It is all very well saying that they need to keep going with ridiculous subsidies to provide employment (by the way, Thatcher was told the same), but this is short termism. We need to make bold strategic and probably deeply unpopular decisions to secure the future for our children. Up to now, we have been totally hopeless at that in Cayman. Can you and your government be a truly transformative government like Thatcher's, changing things for the better (mostly-there will always be difficulties to deal with). Please try.

  2. Anonymous says:

    The Premier ought to restrain his announcements of costly infrastructure development projects until the compelling business model he promised is published, financing secured, labour and equipment sorted.  The second line item is going to be very difficult and expensive.  In terms of economic stimulus, construction projects at best provide artificial short-term employment spikes, and the hope of a knock on to the tourist economy, from which a few concentrations of native sons actually benefit.  The core problem is that the CIG cannot remain the number one employer in the Cayman Islands.  There need to be cuts to the CIG headcount expense for the next 20 years in order to meet the payment deadlines we are stuck with from the negligence of previous regimes.  Additonally, the plan to replace the upcoming bullet maturities with a new series of structured debt, is likely to be constricted by inflation and a rising rate environment 2 or 3 years hence.  We should be planning for that as well.  

    Meanwhile, what has become of the MLA pension double dipping, 40% salary raises from the disposed former UDP leader in 2009, and those dismissed with pay CIG employees taking 6 figures at home for last 4 years?  Can we get more information on the Government asset insurance coverage that was cancelled on the UDP shift?  What was the net gain from that negligent decision?  Who was responsible for the suggestion?

      

     

     

  3. Anonymous says:

    The new Premier is starting to sound like the first Premier when it comes to the pressures the government is facing in trying to remain compliant and satisfy the FFR requirements and seeking relief from the FCO.

    When will they accept that down sizing the Civil Service starting at the top with the big earners who are providing very little value for money in several Ministries with the special pensions and benefits is the first step?

    How can Cayman afford a new cruise dock and airport given the lack of funds and ability to borrow?

    • Anonymous says:

      9:15

       

      Just in case you were living  on another planet, for the last 3 to 4 years. In regards to your last paragraph.

      There is a thing called Private Public partnership. This is where the private entity, design,finance and build the infrastructures.

      This practice is happening all over the real world. Most governments do not have the funds to continue to build their infrstructures. So they turn to this method. We will have to do the same, otherwise get left out into the cold.

  4. Anonymous says:

    my worst fears regarding the ppm are being realised on a daily basis……

    • Anonymous says:

      You should be getting ready for court, mac.

    • Anonymous says:

      New goverment but same PPM mentality to financial management

    • Anonymous says:

      That they are honest and not given to corruption? I fully understand why a UDP supporter would fear that.

  5. Whodatis says:

    Lol!

    With every passing day we are easing our way back to the financial and budgetary framework that was in place prior to McKeeva's falling out with the UK.

    Immediately after he was ousted, Juilianna went to the UK and received the very same allowances that McKeeva was demanding.

    Here we see Alden challenging the over-bearing and unnecessary (when viewed in a global and realistic context) restrictions placed on our short to medium term economic outlook – and it appears as if the UK is willing to play ball.

    Boy, that is one spiteful "mother" if I have ever seen one. Willing to let all of her "children" starve on account of one that she regards as unruly.

    Lemme see if my popca'an dun' poppin' ya!

    #independenceisinevitable

    #caymanisnotjamaica

    #60yearoldbogeymancantscarenobody

    • Anonymous says:

      #Whodatishasdiscoveredhashtagsandheisgoingtousethemtoannoyus

    • Anonymous says:

      A good >>>>>>>>>>>>> Mama never gives her erresponsible child anything

      caus he will just say it wassen me, blame him/hir/them <<<<<<<<<<<<<<.

      • Whodatis says:

        Compare the economic reality of the mother and child – then tell me who is the "erresponsible" one.

        Cameron, (Jeffrey, lol?) Osborne, and Simmonds would sell their mothers to exchange their economy with ours today.

        I can see them now … celebrating down the pub, drunkenly singing along to "Love Ballad"!

        It is nothing but rhetoric and a pathetic means for the UK to flex what little power and relevance they have remaining in the world today.

        "Let's bully those tiny island specks that we still own over in the Caribbean … bawahahahaha!!"

        Meanwhile, the bigger and truly crumbling economies of the world are looking at them like;

        "Really dude? This is your focus? Man-up, look in the mirror, quit playing childish games, and sort out your own shit!"

    • Kurt says:

      A mother that very frequently hides stuff saying 'it would be prejudicial to the relationship it has with Cayman'.

      a relationship based on hiding stuff has to be worrying.

      Imagine if you ask your spouse, child or mother almost always answered your questions with 'the answer to that question would be prejudicial to our relationship' lol

    • Anonymous says:

      When McKeeva went to the UK, the UK actually said that it would allow borrowing if there was a realistic plan for repayment, either by charging fees for the use of a facility (port etc) or by making proper provision within the budget for repayment from tax revenues (schools etc). McKeeva just threw a hissy fit and refused to engage because he wasn't getting his own way. It seems he didn't have the intellectual capacity to understand that he was just being asked for a realistic plan and chose to present it as him against the "colonial masters", when in reality it was him not being allowed to waste Cayman taxpayers money on vanity projects. It appears that others understand what was being asked of them and in return they are getting co-operation from the UK.

      • Anonymous says:

        You know what pisses me off,  the  the people on this site is so blinded by hate for certain people that their comments are more damanging to the country.

        so what if makeeva threw a hissy fit.

        Your first paragraph doesnt make sense. (charging fees for the use of facility…port etc) CIG are charging those astronomical fees already.

        Payment from tax revenues ( schools etc.

        Well let me tell you, Makeeva got more intelect than ten of you educatioed smart ass.

        Makeeva has the intellectual capacity  to know that he had to get major projects off the ground to stimulate the economy.

        It was his own people that stopped him, they will regret it very soon.

        Realistic plan..my ass!

        Why don't Caymanians and  expats alike, be more positive and productive with their comment.

        Whats wrong with you guys suggesting to any government how to  make money….. example; road toll, 28 million dollars a year. gaming 75 million dollars a year. sell the turtle farm. merge our airline with another large intity.

        Stop the tearing down…please!

         

        • SSM345 says:

          Tearing people down? Good one Mac.

          More intellect than 10 of us? What crap are you smoking?

          The only thing you have more of than anyone in the history of the Cayman Islands is the bullsh*t that spews from your mouth on a daily basis and that supporters that gobble it up.

           

      • Whodatis says:

        You appear to be better informed than the rest of us.

        Please breakdown (with facts, not rhetoric) the difference(s) between Julianna's approved demands from the UK and that of McKeeva's unapproved demands.

        Thank you.

    • Anonymous says:

      #Trolltrolltrolltrolltrolltrolltroll

      • Whodatis says:

        So original … and insightful.

        Thank you demonstrating the typical characteristics and strengths of my steadfast opponents.

  6. J Salasi I. -111? says:

    Well sounds like speaks like a sound plan. I n I haven a question in terms of the hinsurance that the Premier spoke about. Does he know the full worth of government assets and what they can be insured for and how this value if known maybe help in the overall assessment of the finances and financial position of the country. Start looking Breda .

  7. Security - Stability - Prosperity says:

    ''Overly ambitious targets to cut expenditure''? Say what? The government is wasting tens of millions every year on Cayman Airways, the Turtle Farm, NBF, the bloated civil service, scholarsips for children of rich parents, and so on and so forth. Now the Premier is lamenting about cuts being too ambitious?

    Gordon Barlow estimates that the hundreds of millions that have been poured into the airline over the years make up for Cayman's entire level of debt. I would much prefer a debt-free country served by profitable private airline operators to a massive state debt of $700 mln, $33 mln interest payments per year (2011) and another $23 mln a year to cover the airline's recurrent operating losses. Just imagine by how much import duties could belowered if the government would not have to fill the carrier's ''black hole'' with public money. The ''Caribbean High Flyer'' is really the ball and the chain on the taxpayer's leg.

    And why is it that CINICO stubbornly refuses to comply with the FOI law? The government is holding on to agencies that are not within its core competence and should be sold off with the proceeds being used to repay debt. The Water Authority can only be the beginning.

    A $260 mln loan becomes due in late 2019. By setting aside $40 mln or so each year from now on, it could easily be repaid by stopping the waste without raising new revenue. And it would save millions and millions of interest payments in future years, especially when interest rates will rise.

    As for the civil service, there are numerous measures that can and must be taken:

    • Enforce the legal retirement age to prevent double dipping in salaries and pensions.
    • Clamp down on side jobs that take away work from the unemployed who need it.
    • Have civil servants pay for their and their families' health insurance like everyone else does.
    • Have them share in the contributions to their pension plans, again putting them on a par with the private sector.
    • Introduce a voluntary termination scheme with increased severance payments for everyone who is changing over to the private sector. Someone has suggested that the 2,000 or so work permits that expire later this year could be replaced by current civil servants if adequately trained and if the transition is being made easier for them and their prospective employers.
    • Perhaps the biggest problem with the civil service are their unsecured future pension liabilities. No one knows what their exact level is. Estimates range up to $700 mln. So the first step would be to properly account for them. Maybe it is not by chance that the new governor is an accountant.

    Minimum wages won't work, but will only raise the number of unemployed. This is economics 101: An employer (at least in the private sector) hires workers only if they produce more than they cost him in terms of salary. So if he is forced by law to pay a minimum salary, but the workers are not productive enough to justify these costs, he will not hire anyone. There is no point in a minimum salary if the unemployed cannot get a job. Worse yet, those who currently are on less than the planned minimum will be fired, which will raise unemployment. Minimum salaries will have to monitored since every employer will try to dodge them. Enforcing them will require more public servants, more government expenditure, more regulation, more red tape… Better ways to reduce unemployment and putting the economy back on track are reducing public debt, lowering fees, and training the workforce.

    And investing in the infrastructure. The Premier is certainly right about the cruise ship docks and the extension of the airport's runway. But he has ''forgotten'' to mention the sorely needed new waste management facility that would terminate the awful third-world-like Mount Trashmore dump. At least the Shetty Medical Centre is well on its way. Legalising casino gambling would also lead to inward investment, promote tourism and create new jobs. All of these projects can and should be put up for public tender and realised as public-private partnerships.

    If the current government really is ''the best team the country has ever had'', it will cut expenditure, sell off assets, repay debt, resize the civil service, forgo minimum wages, invest in infrastructure, and lower import duties.

    • Anonymous says:

      If Gov't doesn't create a minimum wage there will be no Security – Stability – Prosperity.

      This is so simple, YOU get a job anywhere you think you can fit in .YOU work for $5 per hour and go live somewhere in the island where YOU can rent, buy food and pay utilities, catch the public bus, go to grocery store buy food with what is left then come back on this forum and tell people what it was like . Do it for 6 months. Got kids take them with you .Try it 

      We need a minimum wage just like every other 1st world country does. If your business can only make a profit by stealing from your workers then close the business down simple. YOU are not qualified to run a business.

      • Anonymous says:

        Do you seriously believe that Caymanians are going to work for the minimum wage of between $5 and $10?
        If not, how s the hike in salaries going to help the local economy when our low end work permit holders will be sending their wage increases home to their families in foreign countries instead of spending it here to boost the local economy.

        • Anonymous says:

          Get your children , families, brothers and sisters to assert themselves and go get a job. thats what all Caymanians did back in the 60s , 70s 80s and mid 90s.

          if you guys are ready, willing and able to do this, then no one can take your jobs from you.

          If you all were out there on  those jobs, no expats would find any vacancies when he arrives on island.

          Parents, and guardians you cause this on yourselves, i remember up untill late 80s caymanians ran things, they dominated the constructon industry. Where are the off spring of these hard working construction workers?

          CIG needs to do a data on all the young men and women  that refuse to work, and publish the list.

          This will shut the blabber mouths. im sick and tired of flogging the dead horses!

           

          A born Caymanian.

           

        • Anonymous says:

          Do you seriously think that crime is going to go down if you don't pay proper wages? What happens when theres not enough money to pay the 8000 people who are on the welfare checks they getting now?    Are you really thinking about that? What happens when we find people to do the same jobs that the work permit holders are doing now for even less money? 

          Do you think that won't happen? We are setting us up for a diaster in paradise. A small country like this with people who will find out how much pay people are getting within the first month will disrupt all tourist business. 

          Unless we have price control OR a minimum wage where people can see a light  at the end of the tunnel. People from other countries, won't come back here to look for a job.

    • Anonymous says:

      I believe that the evidence is that, on balance, minimum wages actually improve economies, as they increase the purchasing power of the lower paid and put more cash in circulation. If I remember my economic 101, GDP is as much a function of the velocity of circulation of money as it is of the total amount of money in circulation.

      • Anonymous says:

        All happens with a minimum wage is that COST of products and services go UP.

    • Anonymous says:

      They too f@@@ lazy to do things that will benifit the people. Government are not the best when it comes to having good sense.

      They take the easy way out. increase tax. any dummy can order his servants to add taxes. 

  8. Anonymous says:

    alden decoded:….i want to spend and borrow more without expenditure reductions……

    again how are the port and airport going to be financed???? on the back of minimum wage legislation????????

    how about doing something which will actually improve the economy?

  9. Anonymous says:

    The current government is to worried about making it fair for everyone. They are stifling work ethic, breeding class warfare, handing out 'free' stuff like it is candy and creating a huge portion of the population dependent on government handouts to survive. We as a people need to be responsible for ourselves. When I was young I did not have a 50 inch TV, I had to work for it, save my money. Today everyone expects things, and I feel the classic example of that is the social services. This will be the death of this country, entitlements will kill this nation, and someday we can all put our hands out and ask UK to support us.

    These Islands is run by the same wealthy elite regardless of which party governs us.Government cannot be complacent, below the headline figures long-term youth unemployment is rising at a worrying rate. It's clear that the current nationally-driven attempts to tackle youth unemployment aren't helping the long-term unemployed. While there are good initiatives, Government has incentivised a series of services like schools, colleges, third sector providers to work in isolation of each other, with no clarity on who is responsible for leading the offer to young people on the ground.Local authorities and their partners are best able to bring together services that help young people into work and learning.With the greatest will,Alden cannot do it all from the centre and so we now urge Government to work with local authorities and their partners, giving them the powers to ‘own the problem' and become the link between young people and local employers.A real problem 20k work permits and 3k caymanians unemployed that figures not included the 1100 government overseas contracts in the civil services and publicservices.

    • V1 says:

      I agree with you, but not your first two sentences. Maybe you can elaborate on them and explain how the government is doing those things.

    • Fun Fact says:

      > They are stifling work ethic, breeding class warfare, handing out 'free' stuff like it is

      >candy and creating a huge portion of the population dependent on government handouts to >survive

      Wrong wrong wrong. This is a result of the policies of the UDP government that saw the number of people on social services jump to 8000+.

      -Jeff

      • Anonymous says:

        8,000 on social services?  –  funnily enough is almost exactly the number of poor people imported as a direct result of Mac's status grants. What a cooincidence!