Fiscal rehab

| 01/09/2009

Our elected leaders should go down in history as the government that saved us from taxation not the one that turned it loose. Recessions are the result of overindulgence.

When our excesses finally become so extreme that we can’t sustain the weight of too much speculation, debt and enthusiastic growth, the house of cards comes tumbling down, shrinking us down to size, making us re-examine our ideas and values, forcing us to pay off credit cards and loans. A recession drags us kicking and screaming where we don’t want to go. Fiscal rehab is painful, we lose weight, get the shakes, and eventually, after saying goodbye to the perks and luxuries we get leaner and smarter.

Recessions hurt and we resist with all of our might, but eventually businesses are forced to scale back their projects and plans, laying off the great people that they have hired, training and groomed for the future. Property holders sell homes and investments, often for less than they paid, and pensions disappear. People begin living on their saving, anxiously taking jobs that were beneath them before. Without doubt the medicine is very painful. Like chemotherapy we drink poison to kill the cancer of economic excess and sometimes the poison nearly kills us as the pendulum swings too far. Cutting muscle, fat and bone. This is the price that we pay for not having the magic of brilliant fiscal foresight.

Every person and every business is affected. Now our government is going into fiscal rehab and it doesn’t like it any more than the rest of us. Unlike the private sector it has the awesome power of taxation. It is now proposingto use its power of taxation to perpetuate its current expenses structure instead of seeing this as an opportunity to implement a top down quest for lean efficiency.

Competitive businesses can’t afford a top-heavy bureaucratic structure and neither can a small community with a population of barely 60,000 people. Cayman is not much bigger than a large North American town, yet it has the government structure of a small nation. We have the government that we have because we had so much money to spend for so long. Our government structure took many years to build and it really is something to be proud of. A trip through the 800 pages of our annual budget is a mind-numbing journey of an elegant structure of intricate plans and expectations. After so much work it seems a shame to not use it, but now we need a government that we can afford. Our current tax base generates nearly CI$500,000,000 PA. That’s roughly US $30,000 for every 3 people in Cayman, assuming that they haven’t been sent home because of rollover or a loss of employment. Cayman needs more people and it needs more economy if its wants a bigger government, not more taxes.

Government needs to cut away fat and even muscle in order to deal with its new reality; projects, plans and great people with wonderful ideas for the future need to be let go. Government needs to concentrate on preserving the core elements of it responsibilities: expanding the economy by removing restrictions, protecting its citizens and managing its revenue stream with the least overhead expense. Projects and plans that don’t produce results now need to be put on the shelf for the future or maybe never. It needs to consolidate its hierarchical structure down to a flatter structure of core competencies and productive responsibilities. Magically, every reduction leads to more efficiencies and its business becomes simpler to manage and progressively more cost efficient.

Government needs to keep people who do the essential revenue and protection work, and eliminate managers, managers of managers and mini-departments. They need to consolidate tasks and responsibilities; simplify communication by eliminating reporting layers, internal memos, meetings and committees. It should give the most competent people the ability to consolidate multiple departments and operations into smaller more efficient structures, and then ask them to do over it again. Instead of trying to justify jobs and positions, employees should be trying to eliminate their job and move into the private sector. Every person in government is either part of a reduction solution or they are part of the expansion problem. Practice this continuously and within a year or two our government will be half its current size and still efficiently providing us with essential services. Experienced, ex-government employees with a resume of aggressive cost cutting will easily find profitable employment privately.


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  1. The Solution says:

    This is a unique opportunity for Cayman to take the initiative. Rather that cow tow to the demand that it should start raising taxes, it should reaffirm its tax free status. It should get its public spending under control. Renewed efforts should be made to improve the safety and stability of the country. What is needed is for existing businesses to expand and for there to be new businesses to set up in Cayman. This is the true path to prosperity.

    Amongst the other issues to be tackled is the perception held by potential investors that the natives are hostile. This has to stop. It has been exploited by all sections of the political classes to get votes and is not in the interests of Cayman.
    The other group that has to be constrained are the churches. Almost all Caymans problems can be traced back to them in one form or another. Most should be closed down and those that remain must never again be allowed to hold such influence.
  2. Anonymous says:

    Mr. Smith makes a number of very good points. However there is a further point which I think needs to be made to add perspective to both the problem and the solution which he identifies.

    That point is that under our current system of government and the new Constitution which the majority of Caymanians have approved, there is a fundamental misalignment of the interests of the people and the interests of our politicians. Those of us that elect the politicians generally expect that our government will provide us with essential government services in a cost effective and prudent manner. Unfortunately, many of our politicians are interested in politics as a path to power and the ability to amass personal wealth. Similarly many of our politicians have no interest in, or inclination towards, being "good stewards" of Cayman’s long term future. They are quite happy to mortgage the future of Cayman and to saddle future generations of Caymanians with impossible burdens of debt – all for the sake of buying our votes with the inheritance that ought to be our children’s.

    Debt has become the drug of choice for our politicians and they have become truly addicted to this drug. We must find a way of ensuring that they never have access to it again.

    We will be nothing but "enablers", risking our own financial futures if we allow them to broaden Cayman’s tax base through additional forms of tax. Providing our politicians with more tax revenue will only allow them to drag us further into debt. Our politicians have shown themselves unable to control their use of debt and we must ensure that they have no access to it.

    It may sound drastic but I believe that we should have a referendum to demand a new Constitutional provision which would prohibit our government from taking on any debt. The debt we now have should be elimated through drastically reduced spending, the elimination of the "red ink" projects (including Bosuns Beach and even the unaffordable schools which are bleeding us dry), and the privatisation of loss making government services such as garbage collection. 

    Sending government to rehab but allowing it to have unrestricted access to its drug of choice will be nothing more than a continuing waste of their time and our money. We simply cannot trust our politicians and the "drug" of debt which has the ability to destroy Cayman faster than crack cocaine ever could.