Clock ticks on budget
(CNS): The Governor’s Office confirmed on Monday that the UK has responded to the three-year plan submitted by the government at the beginning of April and work is currently being done to answer the Foreign and Commonwealth Office queries. A spokesperson for the governor said that a number of questions have been asked by the FCO regarding the proposed three-year plan and that considerable work is now going on behind the scenes. As that work continues, however, the clock is ticking on government as the Public Management Finance Law states that it must table the budget in the Legislative Assembly before 1 May.
The Governor’s Office said it was not yet in a position to disclose the details of the UK’s questions but it confirmed that the work on the full three-year plan would have to be completed before the 2010/11 budget was brought to the Legislative Assembly as a result of the borrowing requirement for the next fiscal year.
Following the news from the Financial Secretary’s Office last week that almost two thirds of government departments have failed to submit the target reductions for the 2010/11 fiscal year, government may miss the budget deadline. If so, it will have to bring an amendment to the PMFL to extend the period of time needed for preparations before it can bring its 2010/11 spending plans to parliament.
During last Thursday’s press briefing the premier said that the elected arm of government could not control the personnel costs of the civil service and the governor and deputy governor were working on reducing the HR budget by 8% as requested, but the elected arm of government was helping to direct expenditure reductions based on the information from civil servants.
McKeeva Bush said that the elected arm of government did not have the power to cut civil service numbers as that was up to the governor, who, Bush said, had spoken plainly about the need to rein in public spending.
With just over two months remaining in the 2009/10 budget year, government is expected to be facing another considerable deficit in this financial year and will need to borrow in order to pay its bills. Although the Cayman Islands government demonstrated its ability to borrow on the open markets at favourable rates with last year’s bond offering, in order to extend the debt it must gain approval from the UK.
The Minister for Overseas Territories, Chris Bryant, has not yet given permission to increase the CIG’s debt burden and the FCO has made it clear that the minister is expecting to see new revenue raising measures as well as cuts to public sector spending before it offers its approval.
However, Bush is hoping that his proposals to cut government expenditure over the next three years and encourage inward investment will be enough to persuade the UK not to base its approval on the introduction of some form of direct taxation. Although the signing of the two MOUs in the last two weeks will go some way to illustrating the UDP administration’s goal of generating revenue through private sector investment, neither the port or the proposed new hospital are likely to make any major financial impact in 2010/11 and may not be sufficient to persuade the UK that the CIG can bring borrowing back within the limits of the PMFL without taxation.
Category: Headline News
This Public Management Finance Law is really becoming a problem. And what do we do with problems ? Thats right ask Dan Duguay…
"neither the port or the proposed new hospital are likely to make any major financial impact in 2010/11"
It was my understanding that the builder of the new port, DECCO, will collect all the monies for tourist tarriff, so CIG will actually lose all that revenue once the berthing facility is completed. They may not have to pay for the new dock but they won’t make money off it.
And the hospital will be a private venture – how is the CIG doing to make any money off that? Work permits alone, as apparently all the heavy equipment will be duty free.
Basically – I don’t see how the CIG can do it in 3 years. They already owe a huge amount of money — a big loan and a bond deal – all in the past year. Now they’re in deficit again and need to borrow, again. Yet they expect to make ALL that money back, plus interest, in 2-3 years. And they will continually have the CS pension/healthcare to pay – for LIFE. Do the math!
I don’t envy the catch-22 that the elected Government finds itself in: it must decrease the expenditure arising from the costs of running the civil service – which comprises the vast majority of its voters. Undoubtedly, whatever decisions are made, the chances of a re-election are limited, regardless of what positive overall effects a decrease in civil service wages might have on the Cayman economy, especially the effect on our reputation as a place to do business, which will determine our revenue base (both public and private sectors) in the future.
However, the hard decisions still need to be made and unfortunately the civil servants themselves have not been able to come up with the obvious answers.
Referring back to the Miller report, which is the latest and most complete of any analysis of the current Government financial situation I am aware of, the situation described in it is almost laughable, if it weren’t so real and so serious. It says “…the principle is straightforward: Government employees have received additions in pay and benefits not shared by the economy as a whole and definitely not affordable”.
The suggestion that cutting the salaries of the civil service won’t do anything is heavily biased and I would guess has been written by a civil servant. Again, in the Miller Report, the magic number to reduce the salaries and benefits by is 21.6 percent (for Government as a whole, not just core Government). This (according to the report) would lead to a whopping savings of CI$83 million. That seems like a pretty big number to me.
The report goes on to say: “Despite not having many of the responsibilities held by larger nations such as assessing and collecting direct taxes, extensive welfare systems and national defence, the level of Government employment is on par with or exceeds that of many of them. This has two implications for labour costs faced by private business …. 1) the private business sector that is paying to revenues that fund Government may be paying for more Government employees than is required; and 2) the private business sector is likely to be competing with Government for labour in a limited market and to an extent not experienced in many other competitor countries”.
This is the situation without a direct taxation system, which should give pause for thought to those who think that the answer lies in simply imposing taxes so that we can all bear the burden an over-paid and overweight civil service. The imposition of a direct taxation system will increase the amount of expenditure – by how much one can only guess – which send this dream of a balanced budget flying off to some other date even farther into the future.
If Cayman needs to borrow more money to pay its bills, we will have a PR nightmare of even greater proportions than the travesty that occurred last September. The Cayman business community cannot reasonably withstand that kind of reputational blow again – not ever. The first time around the news ruffled some client feathers and spread speculation that perhaps Cayman was no longer the place to do business, but the business community rallied together and temporarily put their minds at ease.
It will not be manageable the next time.
without the personnel expenditure issue sorted out the government cannot finalise the budget. I heard that the cuts are not being met by the civil service. how long will this deadlock continue?
last year the government raise revenues to balance the budget. are we saying that there is no way that we can achieve some cuts even if small? this is an unreasonable position. we cannot just look to raising revenues every year.
I blame you, you blame me
we’re not a happy family
with a great big cheque and healthcare to boot.
won’t you say you blame me too
If the CS is the reason for the country being broke then let the powers that be which is not the government cut the CS in half and reduce all salaries across the board by 5 -10%. I hardly believe this measure would help the budget by even 5%. The government knows what it must do and the longer they wait theharder it will get. The government needs to stop the give aways, handouts and sellouts maybe then it will be able to provide a proper balance.
If the govenment is unable to cut the CS and provide the necessary budget to the UK then the UK should do it for us, plain and simple.
The vast majority of MP’s simply did what their accountants advised they could do under the rules. The subsequent recoiling was largely a pander to media hysteria. The real problem was a poor set of rules for MP’s expenses not the MP’s themselves. Only tiny minority really could be said to have gone further than that – less than 1% of the MP’s were charged.
Una try stop talking dam foolishness bout govt broke beause of civil service, the whole dam world is in a recession!
Exactly. The UK & US are both in a bigger mess than us so the UK can’t help us if it can’t help itself. What is the UK doing for/to T&C?
Heads need to roll to stop this impasse.
Once one or two roll, the rest will snap into shape.
Mac’s cowardice in refusing to make ANY appreciable cuts in publicspending will come back to haunt us. It shows equal measure of arrogance and ignorance.
looks like we are in for another sham budget like last year….. with the gov not having the guts to tackle the civil service its time to take out the smoke and mirrors
The Civil Service should be ashamed of themselves for carrying the country down this road. Everyone else in the private sector has given up something in order to keep things afloat. Why does the Civil Service not just take the pay cut that was originally suggested or would you preferer that we all pay taxes?
If you think that that Civil Servants taking a pay cut is going to magically balance the budget and make everything ok, you are living in la-la land. The key phrase is finding "sustainable revenue" sources not a one-off cut to meet the bills this month! Then what? In the next six months theyhave to cut again because they need more money. Yes I believe they should implement some form of direct taxation, the property tax being the preferable one at this time. Caymanians are too selfish on a whole, they always want something for nothing. As far as I a concerned the majority of the people who suggest or implement these revenue measures seem to be concerned mostly with implementing revenue measures that least affect them. Everyone have to do their part. Taxing only expats (money transfer fee) is so non-sensical. Do only expats drive on your roads? Use your your hospitals and all the other "free" services Government provides. Seems to me that Caymanians wants all the perks and are trying to figure out how to get the expats to foot the bill.
Folks, if Cayman tax… then they need to legislate guidelines on where the money goes – not in the pockets of politicians and top civil servants. The tax should be a flat tax (a community fee) and at the same time they should implement a minimum wage here. Of course, the tax should never touch or negatively effect our banking clients, because they are the ones that bring money into the country
For now though, let us give this government a chance and see if they will CUT and increase Revenue. Besides, we gave the PPM a chance. An MOU has been recently signed for the Cruise berthing facility – so let us patiently see the outcome.
I still think we can do without taxation and implement the CUTS that the U.S. Miller Report had suggested. Even if FCO imposed tax on us, it would be nice to know that we had CUT unnecessary expenditures within government, and thus reduce duties and fees
Oh… and one lastthing, not "all" Caymanians are selfish. I must disagree with you. I have met some decent and principled Caymanians. It is like you saying all UK citizens like yourself are selfish and greedy people. Who am I talking about?
Anywayz… that’s my 2-cent
Once tax starts it just goes up and up.
If you think that that Civil Servants taking a pay cut is going to magically balance the budget and make everything ok, you are living in la-la land. The key phrase is finding "sustainable revenue" sources not a one-off cut to meet the bills this month!
Not true. This would not be a "one-off cut", rather it’s hoped it would permanently reduce the massive size of the Civil Service which is out of proportion for a country this small. Not only should civil servants take a pay cut and/or reduce their numbers they should get out of their "la-la land" as you suggest and begin making contributions to their own pensions and health insurance.
As to "sustainable revenue" it can also be interpreted as to whether the government can sustain itself with present revenues if expenditures don’t match. Note over 50% of it’s present expenditure is for civil service payroll, pensions, and health insurance. Got it now?
Even as the smartest duck in the world I’m just not getting this. The CIG has to produce a budget for the FCO and it would be preferable if it was balanced as per FCO requests. And one of the largest expenditures of the CIG is the civil service payroll. The CIG said that, the Miller Report said that, and the Governor acknowledges that.
But I just read the CIG says it has no control over the civil service.
And the FCO says the CIG must reduceexpenditures?
And the CIG says the FCO must come up with ways of reducing expenditures? Quack.
My hope is that the Cayman Islands are not hurt by this.
Sorry to dash your hopes but we’re already hurt – its the extent of the damage that remains unknown – due to no up to date audited accounts.