Cayman’s Fiscal Destiny: Stuck in the Trenches?

| 23/05/2010

A new arrival in Cayman might be forgiven for wondering if many of the key players here are stuck in the trenches of World War I. And are waiting for some deus ex machina (like the armoured tank) to rescue them from the stalemate. So we have private sector groups lobbing shells into the air shouting “no to any (more) taxes, cut the civil service, waste and unnecessary government services”.

The civil service association arouses itself and lobs back equally large shells proclaiming “we do a good job, we have contractual entitlements and just see what happens to all those needed services if there are cut backs”. Both sides take a short break, reload and start shooting again.

The political leadership understandably seems taken aback by the Luddite attitudes of both sides, and is unable to find the right key to unlock the impasse. And with no success at banging heads together in smokeless rooms to get an agreed and lasting compromise (and both sides have good and bad points in their arguments), the leadership has, albeit reluctantly, now had to pass the hard decisions to the UK in the hope that it all works out in the end.

This is very unfortunate as we lose control of the final outcome. Who knows what the UK’s decision will be; it is quite possible no-one will like it. And if there is no buy-in locally, it is unlikely to succeed. Cayman is a supposedly sophisticated place with a sensible Government and a dynamic private sector. So we do ourselves a disservice and it reflects poorly on all of us if we cannot resolve these financial issues locally and in a mature manner.

To move beyond the present position requires everyone who is currently shouting to stop and think. Politics is the art of the possible and the compromise. So we should take the time to decide carefully what infrastructure and services we want our Government to provide (and accept that we cannot demand those we are not willing to pay for) and whether the current model that Cayman uses to raise its revenue for these purposes is sufficient and sustainable in the long term. And then make changes decisively and move forward. So far, there has been remarkably little considered debate (there has been a lot of posturing), let alone any concrete moves towards a compromise solution. Reaching for outside experts and reports is helpful, but at the end of the day, the analyses and solutions should be in the Cayman context, rather than demanding the simplistic application of the perceived wisdom from elsewhere.

It is probably now too late to do much, if any, of this ahead of the impending budget and three year plan, but no-one should think that the problems are going away. The new budget and plan will surely present “best case” scenarios that, given the continuing global uncertainties and recent prior experience, are unlikely to be achieved on either the revenue or expenditure sides within the required timeframe. So we have probably only bought ourselves some breathing space, along with more debt. We should use the opportunity to do what needs to be done for the long term, and well before the next crisis arrives. If we do not, we will have simply kicked the can into the next muddier and possibly deeper trench.

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  1. Dagny says:

    This bird’s eye view must have be taken from a dizzying height, because although it does paint a colourful Utopian picture of one big happy family, it is like a Monet – the beauty of it is in its lack of definitive details. 

    It is certainly in the best interests of Cayman if the CIG and the private sector engage and work together.  Indeed, the CIG has a signficant advantage over other countries in similar predicaments because it has a highly qualified and knowledgable private sector at its feet begging to be part of the solution and ready to contribute resources (time, expertise and money) for free in order to find it.  It is glaringly obvious that Cayman’s current situation affects every single resident, so it is in the best interests of everyone if these two groups can leave their egos at the door, roll up their sleeves and get the job done.

     A special report such as the Miller-Shaw Report was supposed to be the objective roadmap that would be the starting point for such a discussion and from what I have seen, the private sector has supported the findings of this (Goverment sponsored) report repeatedly.  Somehow, though, support of this (Government sponsored) report is now seen as lobbing grenades.  Go figure. 

    A more accurate depiction of what is happening is this:

    Government is not listening. 

    Government is again hiring outside consultants who do not have expertise in the areas that they are proposing to assist in and are using the Cayman Islands as their guinea pig to develop new areas of business for themselves. 

    Government is busy developing more little committees of appointed individuals who sit in long meetings and prepare long papers and reports that will be presented back to the CIG all wrapped in pretty paper and bows.  These committees will recommend more committees and more authorities to deal with the gaps and inadequacies of the system, rather than making the tough decisions and making the cuts towards efficiency immediate and humane (rather than the death by a thousand cuts option).

    Government is still parading around the world without a plan or the expertise to speak intelligently on the issues at hand.  This may come as a surprise to some of the CNS readers, but this latest EU directive is not new – this has been on the boil for over a year and the truth of the matter is that Cayman has no seat at the table.  Efforts to get involved in a political maelstrom such as this are futile – CIG/CIMA are only going to get flung aside like so much minisucle debris.

    The CIG does not have control of the civil service.  The civil servants do not realise that they are also amongst the taxable population.  They have the choice to take the pay cuts now (for the collective betterment) and wait until the economy gets better to either a) get a better paying job in the private sector or b) wait until Government revenues are at such a point where the pay increases actually make budgetary sense; OR they can take their pay cuts a little later than now when taxes are implemented and they will continue to pay those taxes for the rest of their lives, while also dealing with the economic consequences of the business and investment downturns that are inevitable once Cayman’s single differentiator (i.e. no direct taxation) is gone and there is no reason for people to put their money here any longer.

    You are right in that more cooperation is needed between public and private sector, but what is missing from your analysis is a recommendation for the solution.  How does the private sector get CIG to engage?  How do you have a conversation about the betterment of a country when you can’t get through the self-interested?  How does the CIG get the civil service to engage?  The opposing forces are egos – everyone has conflicting vested interests (such as pension plan payouts, high salaries, unprecedented health coverage and of course seeing their own names in headlines).

    Being a private sector employee myself (and a staunch libertarian) I believe that it is the private sector who has the best interests of the country at heart, because when the free market is allowed to run, everyone is better off.  This is economics 101.  History has yet to show that big governments and the big expenses that are required to support them have ever made an economy (and the people who live in it) better off.

     

    • Frequent Flyer says:

      Glad I read them all before commenting..

      I was just going to type up something similar to this but Dagny, this is so much better said than I could have…

      Very well put.

      Thank  you!

    • Dred says:

      WOW. Very nice piece of writing there and very truthful.

      It’s just a sad state of affairs we are in.

    • Slowpoke says:

       Yes, that free market, less regulation… has worked so well.  

      Ooops, actually it was this exact philosophy that led to the US and UK economic meltdown, resulting in our (world) current economic problems.  It also resulted in the need for major public bailouts.

      The private sector has the "best interest" of its shareholders at heart – as it should have – but the "country"? – hardly.

      • Adam Smith says:

        Actually over the last 10 or 20 years the free market and light touch regulation has worked very well.  Stop being so myopic.

        The problems were caused by governments fuelling an asset pricing bubble by forcing mortgage markets to open to those who should have never owned their house and by firing up personal credit markets to support consumer spending.   The problem with bubbles is they pop, but an asset pricing bubble pops in a manner which has knock on effects because of the  across the board negative impact on capital bases and thus access to cash and appropriate credit.

         

        • Slowpoke says:

          Give me a break…

          Enron, AIG, CITI, Goldman… were "forced by government"? 

          They were forced by "greed" and a lack of regulation.  

  2. Anonymous says:

    Tim in my view you are the person from the business private sector who is most objective about the economic and socio-political realities of Cayman. Yes it is very unfortunate that the UDP has not embrased you and your wisdom, but then we know the present political directive is cought-up in an outdated political style borrowed from a failed caribbean leaderships style of the last thirty or forty years. This political leadership style depended on the head of the party praticing political survival rather than national progression. Tim for the sake of these islands you must continue, since you are well recognized as an hourable man, to voice your wisdom even if the present political leader in not listening now because soon he will because there will be an end to postering.

    There must be cuts in the Civil Service but there must also be an increase in contributions from the business private sector which has for decades reaped the majority of benefits of our fincial services industry. You know this better than I and for this reason I trust your stand more than that of most in the business private sector. Keep up the good works Tim.

    • Anonymous says:

      Let me add my complete agreement to what you have said. This is a time at which we absolutely need Tim’s wisdom and objectivity and I too would like to encourage Tim. It was a mistake when the PPM did not renew his appointment as Chairman of CIMA, and the UDP is making a similar, perhaps worse, mistake by leaving him on the sidelines.     

      • Anonymous says:

        As EVERYONE knows, Cayman does NOT want outsiders to have ANYTHING to do with their island.  If it were to succeed, they wouldn’t want to share the glory as they have not had to in many generations past.

        Cayman does not want outsiders!! (They even seem disdainful of successful expats!)

        I just wish, as many do, that we could exist as one people, one island, doing what’s best for the continued success, economically and more ecologically, of this lovely place in the sun.

        • Anonymous says:

          Huh? It is really unhelpful to make these sorts of generalizations. It only feeds enmity between Caymanians and expats. Obviously, there are many expats who are involved in advising the govt. It is unfortunate that Tim is not among them.    

        • Pipple Pottle says:

          It is like reading a John Lenon re-write of a Hitler speech . . . .

  3. Baldric says:

     

    Re: Trench Warfare

    I prefer the similie of two cats in a turf war, posturing, hissing and taking up grotesque stances, neither seemingly able to advance or back down until someone from outside the situation breaks it up and throws a bucket of cold water over them.

    The gold plated  workfare scheme know as " The Government"  is Cayman’s number one economic problem.  A job for life in exchange for a vote for life –  there’s the deal  –  but who’s going to bankroll this for life? 

    The burden of government’s overhead on the economy can not be reduced without some job cuts, which means politicians breaking faith with the vote/job deal, which is political death. Hence the impasse and the inevitability of outside intervention

    A stooge, or ‘Governor’ as they are known locally, will have to be lined up to take the fall. Some time soon the politicians will recall that the Governor is ultimately responsible for the Civil Service and won’t he know it when the hot potato of job cuts finally lands in his lap.
     

    De facto Head of CS, Donnie Ebanks,  must be around retirement age now so I wouldn’t be surprised if (to return to the original simile) he retires and ducks the bullets. 

     

     

    • Anonymous says:

      Tim – there is one key point you left out –  there is another party (Opposition) to this affair.   The Government had included some form of divestment of the new govt building under construction as part of their 09/10 budget.  But there was a proposed march etc.  This adds another dimension to the whole situation, and makes the Governemnts dilemna even more complicated than you have described.

  4. Mat says:

    Tim

    I know many people will shoot me for this, but I am not picking sides. The private can’t have it all their way – neither the civil service or public sector.

    I think we need to responsibly cut the civil service expenditures; at the same time, focus on bringing more revenue into the country. But to the private sector’s dismay, I think it is unavoidable that our government continue like this without some form of a "sustainable revenue" like taxation. And I am sorry to offend the private sector, but we can’t go on like this anymore.

    If I was the Premier I would make an agreement between both the private and public sector:

    1. Introduce a small tax that is not burdensome and does not negatively or astronomically effect our banking customers. As to which kind of tax, it should be the a FAIR TAX so that those making a low-wage are not burdened to a degrading level

    2. Continue to "cut cut cut" the Civil Service, keeping those most essential services that deals mostly with the preservation of society

    3. Continue to "responsibly" sell ourselves (without hurting our environment) to pump revenue into the country.

    I think there will be complaints from all sides and alot of thumbs down to my comment, but something has to be done where everyone is treated like equals. We can not just penalize the public sector and think that will balance the budget… no… we have to take our crisis unitedly. This shooting back and forth will cause a divide that will end up hurting everyone. So we need everyone to SACRIFICE.

    No one can bear the thought of another Ivan – we have to act

     

    • Tony Montana says:

      Nice try and so I am sorry to say this but I dont think you have an adequate grasp of the issues involved here.  The private sector has been penalised (and have accepted such panalties in an effort to help the country) by increased government fees. Some businesses have closed shop and moved to other Islands because of the increases.  The next points are that any sort of taxes would ruin Cayman, which has built a reputation for being TAX FREE (not low tax).  Lastly, the civil service seems unwilling to accept either layoffs or reduced pay to help Cayman.  

       

      • Anonymous says:

        right… and you hear many from the private sector complaining about the efficiency of government’s service. You can’t under pay good folks like officers and teachers and expect them to perform the way "some" of you arbitrarily run your businesses.

        you can’t have it both ways!  an ill-performed civil service will hurt the private sector too

    • Anonymous9 says:

      "small tax that is not burdensome "

      Hahahahahahhaha! That’s really funny and VERY naive.

      Once you implement a tax, the government will up their spending. Mark my words.

      It NEVER stays small.

      That’s silly to think it’s just this one little tax…

      Example;

      Have you been paying attention to the little bitty 10cent stamp duty that used to be on each check you wrote. They decided that it has been .10 for EVER so they upted it 150%. That charge is a government charge taken from our bank account which holds your salary. Sounds like an income tax to me! I’m sure that will continue to climb.

      This is on every single bank transaction that you make.

      Why does the bank need to be involved in MY account to pay the government??

      I’m getting off track now…

  5. Anonymous says:

    Thank you Mr. Ridley.  I will only say that if the Government had listened to you and your suggestion to implement selective property taxes on high end properties on seven mile beach we most probably would have a balanced budget to present.

    • Here is a thought says:

       I am against "selective" taxation.  If I worked hard my whole life to stay out of trouble, work 2 jobs to support myself to get a good college degree and then succeed in my career enough (pay my taxes in my home country!) and if I saved enough money to then buy a SMB condo…why should you punish me and insist that I pay MORE so that social program will continue to support the lower classes and people who do not help themselves?  I am against Robin Hood taxes.

  6. islandman says:

    True enough! though many would argue that Cayman is really sophisticated where it counts for today and the future…And who decides what’s possible? (with such a glaring lack of any real transparency) so far it seems it’s jsut a few rich people…and the church…and that equation alone cannot bring about an educated and enlightened populance.

     

  7. Anonymous says:

    The political leadership understandably seems taken aback by the Luddite attitudes of both sides

    Taken aback??? The political leadership of this country would make the Luddites look positively progressive. The Luddites after all were capable of producing internally coherent strategies and following through on them. 

  8. War Inc. says:

    services we want our Government to provide (and accept that we cannot demand those we are not willing to pay for)

    These two factions you mention Tim may be in their respective trenches but we the public are in No Man’s Land, and we have remained there for months while the shelling continues.

    This is also a wrong assumption of what the public (the farmers held captive in their village while the fighting persists) wants Tim.  The required services can be provided but we believe at a much lower cost. Taking into account our size the civil service is oversize and a way simply has to be found to reduce it’s cost to us.  For instance (and I know we’ve heard it all before) is there any logical reason the civil service is not required to pay a portion of it’s own costs for pension and medical insurance?  Is there a reason all family members are included in this free medical and dental plan? Is there also any reason given that we have heard why MLA’s have not taken their promised salary reductions? Is there some reason why we are paying CFOs large sums to manage their accounts when they are incapable of doing so?  And if you read a recent FOI request is there any reason at all the Port Authority Director here makes more than the one in Miami?  In other words, we know why we’re broke but they don’t seem to.

    Tim you’re correct:  what the sides haven’t realized is that theirinability to give an inch of ground will result in their winning the battle (between themselves) and us losing the war.

  9. Dred says:

    Tim,

    With all due respect it’s because our government lack cahones. We elected a government that is too worried about where their next vote is coming from than they are about the wellfare of their own children. This is not just about UDP because I believe full well PPM would have struggled also. Reason why I hate parties.

    I don’t know how much more we need to put on the table to establish where a great deal of the problems lie. What astounds me Tim is page is page 17 of the MIller report that shows in 2008 Personnel cost hovering at about 215Mil and actual staff at about 3700 to 3800 and then in 2009 the staff actually dropped by 100-200 but cost rose almost exponentially to about 260Mil. How does that work Tim? How do you lower staff and actually raise cost so drastically?

    We need to centralise our HR again. We need to look at what else can be centralised. We need a program put in place to trim CS down to a more manageable number. We need to look at the technology we employ to see if it does it’s job in the most efficient way. We need to look at processes to see if we’ve built in too much purposeless red tape.

    Tim you may or may not want to admit it but they are a huge part of our problem BUT NOT the complete problem. CS Staff need to be put to task for their jobs. Supervisors/Managers need to be answerable for failures. How many owners in the private world would allow its finance departments to go year on year without providing financial figures to them and someone head does not roll? 4 Months after and I have people crawling all up my body parts for ours. Some of these departments are behind more than 5 years. How in the great googli moogli was this allowed to happen? Why are the managers there still there?

    I am Caymanian and I feel for the ones who are getting thrown in with the slackers but it’s been a known fact that alot of Gov employees don’t push hard. I’ve watched them like so many of the public chat while customers stand in line, walk away and disappear for 5-10 minutes at a time to do God knows what. The road works people, 4 of them standing up watching one person work. It’snot just me Tim ask anyone you know. We all see it daily.

    Where is the manager coming out saying guys break it up we got people in line here waiting for far too long. There is one thing to make sure for security purposes that you don’t miss something but something completely different to simply drag your feet at will. I sit here and applaud Immigration for taking a step forward toresolve their issues. Immigration use to be a nightmare but someone stood up and did something.

    I believe wholeheartedly that many of our departments go through unnecessary procedures or are working on antiquated software.

    Now beyond all of that there are things we can do to reduce cost and these things need to be investigated. Centralised stores where all ordering comes from one department therefore utilising CIG buying power. This can lead to good savings not just from the staffing angle which will be good also but because of the savings that can be made by buying in bulk as one unit.

    Standardizing CIG building colours to ensure you can buy this in bulk. I’m sure if CIG looked at things in detail long enough they can find ways to trim cost substantially. The more uniform you make CIG the greater the cost savings.

    I think the creation of a program to move CIG excess employees into private practice would be good. I would create a web site to list the staff available and have private companies be required to review and interview staff prior to work permits being issued to private practice. Staff names would not be used only their positions.

    What we can not do Tim is to stick our heads in the sand and hope that our personnel issues will simply go away. Fact is we made mistakes and we need to rectify them and move on. It will cost us to rectify but in the long run we can consider it and investment in knowledge of what NOT to do the next time.

    I don’t believe all CS is bad and I believe there are many hard working people there. What I do believe is they have been held unaccountable for far too long and when things were good it never shown itself but now that the gravy train is a bit thin we are seeing things much more clearly.

    I believe trimming should come as a result of:

    1) Reversing our mistakes of decentralisation

    2) Removal of unnecessary processes which create additional red tape.

    3) Enhance use of technology such as web based processing, software upgrades, etc.

    I believe Immigration should create a temporary unit who would be in charge of moving these staff out to private practice by having these staff be #1 priority over work permit request.