Miller warns of inflation

| 28/06/2010

Cayman Islands News, Grand Cayman Headline News(CNS): With the Cayman Islands economy likely to remain in recession this year, the representative for North Side told the Legislative Assembly on Friday that the government’s proposed duty increase would cause inflation as the price of everything would go up. During the debate on the law to increase gas and diesel by 25 cents a gallon Ezzard Miller said the reason why government was not taking on board his idea of increasing vehicle licence fees instead was because it already had plans to increase those fees under another new law in September. He also pointed out that, despite claims to the contrary, government had not cut its overall expenditure for 2011.

Miller said that while many government department appropriations had been cut by comparison to last year, because government was increasing spending in other areas, “like protocol”, its total expenditure had not been reduced. Government was relying on an increase in revenue of $20 million to keep the deficit down to $32 million. The North Side independent representative said the fuel increase represented half of that new revenue.
“It is going to be inflationary and affect the cost of everything and a tax that will affect everyone on a daily basis,” he said. Claims by the premier of it equating to only a 5% increase on fuel bills were incorrect, Miller said, and would likely impact CUC bills by as much as 9% but it would also lead to the increase in prices of everything at a time when civil servants and others were facing salary cuts. Given the fact that there was less money to spend, this would lead to a further contraction of the local economy.
“This tax is going to be very hard on the people of this country,” Miller warned, adding that all businesses say that the next highest cost after personnel is electricity. “No one can convince me that this will be absorbed.”
He said the CUC bills for a supermarket could increase by more than $5,000 a month and he did not think they had the profit margins to absorb all of that and it would be unreasonable to think they could.
Denying the implications made by the premier in his presentation that the opposition benches may have favoured income or property tax, Miller pointed out he never had, and never would, support direct taxation and believed in consumption tax, but not this one because of its broad inflationary effect.
He said his suggestion of increases to drivers and vehicle licence fees were one off payments that everyone would make, even if they only drive on the road for one week a year, giving government the certainty of collection. The danger for government’s budget with this increase was that it was not certain. It could see people cut back quite significantly, meaning government could not be sure of the revenue it would generate.
However, Miller noted that he had learned government had plans to increase licence fees and fines under a new traffic law that would be coming before the Legislative Assembly in September, which could explain why it was reluctant to consider Miller’s proposal.
He said at a recent public meeting with his constituents they had indicated their preference to pay the one off license fee hike than pay every time they go to the supermarket, the pumps or any store.. “I am no economist, this is just North Side common sense,” the independent member said. “The government is doing the wrong thing at the wrong time for the wrong reason.”
Miller told the members of the House that the people of North Side were not getting very much from the budget and the good people of Cayman Brac were exempt from the fuel tax and getting quite a lot from it. He said there was no reduction in government’s overall expenditure and his constituents, who lived the furthest from George Town, were being punished and he refused to support the increase.
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  1. Caymanian at Heart says:

    As much as I dislike Mr. Miller, I admit I do often support a lot of his ideas.  I think an increase in vehicle licensing would have been smart.  All those escalades, explorers and hummers deserve to pay an extra price for their damage to the environment.  I say make the duty/licensing VERY high on these types of vehicles and low on scooters and electric cars.  It’s a win win for Government and the environment.

  2. Anonymous says:

    Here’s a thought, the duty should be increased by a dollar plus. Think of the benefits. Good for the ecology, no need to build more and bigger roads, much fewer hiuge dump trucks on the roads, the demand for small cars with 50 miles per gallon ratings would soar. Good for the land, the air, the sea, good for the developement of green technology….. way to go!

  3. Anonymous says:

    Off topic, but I would love to see CNS post this article:

    Wachovia admits to helping move money for Mexican drug smugglers

    http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html

     

    I can only imagine the reaction if this would have been a Cayman (or some other "haven") domiciled bank.

    But you won’t hear Carl Levin complaining about Wells Fargo or Wachovia…

  4. Anonymous says:

    Cayman is too expensive. Cayman dosen’t have much to offer besides Sea,Sun and Sand!            Lower the off-the-chart expensive hotel and airfare prices and the stay overs will increase. The average citizen is what makes the world turn, not the high roller millionaire.

    I’ve mentioned this before and got a lot of thumbs down but I’ll say it again – put in toll booths! Charge CUC, LIME and any other company that is making the money more than the regular driver for using Goverment roads.  Charge the working man twenty-five or fifty cents to pass the toll  and have the option of a fixed rate fast pass for the year. The stayover tourism will increase and Goverment will be counting the quarters until they’re dizzy!.

    Also, time for our senior citizens of 65 and over to be treated like Royalty – or at least like Valued Citizens!  How about mandatory discounts for them? Fifteen or twenty percent off their utilties, their air fares, and their meals in regular or fast food restaurants? Lines just for seniors in all of the banks? These are just a few suggestions…  Who negotiated this new contract with CUC anyways? They didn’t think about our senior citizens?

  5. Anonymous says:

    Why did Ezzard abstain from voting on the budget?  I thought he was going to be a man and take a stand, either for or against the budget.  Sitting on the fence and abstaining doesn’t say much, does it?  It’s like he said, I am not sure if it is good or if it is bad, so I’ll leave myself some room here.

    I agree that our politicians should have some sort of professional qualification (common sense) and tested when signing up to run at elections to see if they realy possess it.  LOL!  Because, right now we have both qualified and unqualified and few seem to possess common sense.  What a mess!

     

    • Anonymous says:

      The Premier is correct. Regarding a few things. He is correct that people are against him. And he is correct they are against him having perks because of "where he comes from" or becasue it is he that is getting them.

      I was listening to the finance discussons on Radio Cayman. The Premier was incensedbecause he says that people are against him having certain benefits and perks simply because it is he that is getting them. He contends that if it was someone from George Town (or elsewhere) that was receiving it, there would be no problem.

      He is correct because I am against a Premier getting benefits and perks for castigating his own country. After ranting and raving (madly?) about the FOI act, he proceeded to call the Cayman Islands a "two bah four" island.(yes that’s how we say "two by four" here in Cayman).

      Why would any citizen be prepared to pay an elected official to belittle the country like this? Mr Premier, if you were an employee I could fire, you’d be fired immediately. I cannot fire you personally YET, but I will do what is humanly possible to have you fired and everything I can do to ensure you don’t continue to be rewarded for disparging our country. Regardless of how small or insignificant you may think it to be, it is still our country and deserves better FROM THE LEADER. That is why people are against you because of "where you come from".

      Even when Mr. Solomon tried to help The Premier by asking for the details of the Governor’s budget requirements so that it could be seen that The Premier’s budget is reasonable, The Premier could not restrain himself enough to see that Mr. Solomon’s point was valid. Mr. Solomon, you cannot help The Premier because HE CANNOT HELP HIMSELF! He has been handed the reins of this country by the previous Govt. who, due to not dealing with serious matters, allowed his return supported by some well intentioned (like Mr. Solomon) people who were desperate for change.

      I have to admit we have change; a dictator for a leader who tried to satisfy everyone including those who support/ed this dictator. The present Premier was allowed to regain control as, if a people have to choose between anarchy (no ruler or enforced authority) versus a dictator (one who assumes sole and absolute power), they will almost invaribly pick a dictator to "protect" them from theives and criminals UNTIL HE DECIDES THAT THEY ARE HIS ENEMY.

      Now the dictator/Premier has decided that EVERYONE or ANYONE (FOI, the Press, …) who opposes him, IS HIS ENEMY. And now this "two bah four" country is also his enemy. And it should be since he is being paid a good salary, with perks and benefits for denigrating it!

       

  6. PaperCaymanian says:

    With our rampant diabetes and obesity problems we should be putting huge duties on soda and candy. It won’t solve the deficit problem but it might start knocking down the hospital deficit.

    The most intelligent thing said in the article is that the expenditure has not dropped. Why isn’t anybody screaming bloody murder about that?

    No elected official who wants to ever be re-elected can say that we can do fine with half of our current 6000 public employees. 6000, that number still galls me.

    Always love your country….never trust your government. 

     

  7. Anonymous says:

    Econ 454 Professor does not know what he is speaking about, perhaps rising cost of living would be a better phrase to use.  Outside of the point made by Ezzard with which I agree, the government does not appreciate that not only is messing with fuel inflationary which will further dampen economic activity and by extension gov’t revenue collection, but it will affect those less fortunate in society disproportionately to the higher earners amongst us.  Consider the impact of a lawyer making $150K pa and living in South Sound, his direct fuel bill increases by $25 per month vs a single mother of 3 who lives in North Side, her gas bill increases by say $80 per month.  This is the reason why a payroll tax is the best choice for putting the country’s revenue on a more sustainable course.  You can make those earning more pay more and exempt those less able to pay.  Payroll tax scales would say – up to $25Kpa exempt, 25K to 60K pay 4%, 60K to 100K say 7% and over 100K pay 10%.  Payroll tax would be levied incrementally ie. a person earning 40K would be exempt on the first 25K and would pay 4% on 15K.  All the rheotoric that this is not what Cayman was built on is crap, as it best isolates those most able to pay and reduces the impact on those earning less.  I am not for any property tax as that will kill the already precariously poised real estate industry.  Levying a property would see a large number of properties owned by foreigners sold immediately and a massive fall off in demand going forward. 

    • What!!!!!!!!!! says:

      He did not just say that!

      Please tell me I was mistaken in what I just heard the Premier say on the 6 o’clock news: I quote, " I did not want to put it on cell phones or vehicle licence, as that is something you have to pay each month".

      Well would someone please tell the Premier that the increase in gas prices with the added 25 cents per gallon, is something we will have to pay for EVERY DAY of our lives in some way, but again it won’t affect him as he has everything paid for by us, the sufferers.

      I really don’t know who his advisors are, but they need to be be fired along with him! 

      • more veggies please says:

        I suppose he loses track of those things…. seeing as how he doesn’t have to pay for any of it anyway 🙂

    • Econ 454 Professor says:

      Please go read my post again, and if you are going to criticise it at least say why and offer an alternative argument. 

      First the cost of goods goes up (the cost of living you mention), then the wages go up to allow people to meet the rising cost, and these 2 things together devalue the currency, which is inflation.

      You also make no sense when you suggest that a lawyer’s mansion on South Sound will take a $25 hit while a single mother of 3 on the North side will take more than triple the hit.  Is she running the A/C with the windows open in your hypothetical?  Please provide a better analysis.

      • FUZZY says:

        To Econ 454 Professor,you missed the point completely.The poster referred to fuel/gas bill ;not electricity bill.FYI the roundtrip from North Side to town and back is 50 miles;the trip from South Sound to downtown and back is 5 miles.Therefore a driver from North Side would use ten times as much gas as a driver from South Sound.

      • Anonymous says:

        The problem with your idea right now is that the wages are going down with all the pay cuts. The one that gets public viewing is the Government cut but there have been cuts in the private sector as well. Now in the perfect world as the cost of living increases then salaries go up as well to offset. But in the current situation Mr Miller is right in that the salaries are going down and the cost of living due to the addedtax on fuel is going up.

  8. Anonymous says:

    Soon nobody can afford to live here any longer, except for the very rich and wealthy (and even those will need someone to teach their children and clean their homes). A bag of chips is now at CI$ 4.57 (for certain brands), milk and o-juice are at CI6.00. These are not luxury items – it is ridiculous!

    Please figure out a way to cut government and civil servants cost and stop forcing more cost onto people. It makes no sense to pull in more funds if at the end of day they are just going to be mismanaged again. This is putting on a bandaid where stitches are needed!

    • Anonymous says:

      Cur government and civil servants…………

      Mac and his advisors could cut till kingdom come, they will never have enough.   Why?   For every cut that is made, they have increased expenditure some where else!!!!!!!!!!!  Get off the band wagon of Civil Servants ……. you cannot cut pay, cut jobs and expect results if you are not prepared to cut expenditure and he is clearly not making any cuts in expenditure….. !!!!!!!!!

      • Anonymous says:

        Re civil servants – Cutting costs doesn’t always mean cutting jobs or reducing salary. Stop handing out cell phones to people who really don’t need it, stop having cars for certain depts. serviced once a month, just because you have a sweet-heart deal arrangement with someone, stop letting everyone drive up and down in government vehicles, control travel expenses etc etc etc etc

        But I agree – they don’t get it, that’s why pulling in more funds is not going to be the solution as long as expenditures just keep on increasing.

  9. Econ 101 Professor says:

    God knows I believe Ezzard is doing a good job, but he’s got this one all wrong.  Perhaps a quick reminder of the definition of inflation would be in order.

    Inflation can be thought of as more dollars chasing the same goods and services.

    The Cayman Islands’ dollar ("CI$") is pegged to the United States Dollar ("US$").  Therefore, as long as this peg remains, the CI$ CANNOT become inflationary unless the US$ also becomes inflationary (which is quite possible given the US Gov’t’s fiscal policy).  However, assuming CIMA maintains the peg, a local rise in prices (even a substantial one) will be insufficient to make the CI$ inflationary.

    Is it too much to ask that our elected leaders possess even the most basic understanding of high-school-level economics?

    • Anonymous says:

      Inflation is the rise in the general level of prices over time.  It has nothing to do with the pegging of the currency. 

    • Anonymous says:

      You clearly have no idea what you’re talking about and therefore I doubt that you attained O level economics. Inflation as measured by Cayman CPI is dependent upon the prices basket of goods and services within Cayman, i.e. local prices. Since most of our goods are imported inflation may also be imported but it may also be locally produced. The issue has nothing to do with the US$/CI$ peg or making the "CI$ inflationary" . You seem to be confusing depreciation/devaluation of our currency relative to other currencies with domestic inflation.  Mr. Miller is absolutely correct.      

    • Anonymous says:

      Inflation is an upward movement of the price of goods and services. That can happen if the CI dollar is tied to the US dollar, or even tied to a tree.

      Your attempt to explain things beyond your own comprehension leads me to believe that you studied Elionomics instead of Economics.

    • Econ 454 Professor says:

      Actually, an isolated economy like Cayman can have inflationary pressures on a pegged currency simply by having the local (i.e. on-island) prices of everything go up, causing a demand for increased wages to compensate, requiring more revenue from the economic activity of the island to pay the increased wages, requiring prices to go up once again.  Poof – you have inflation.

      The pegging part only comes into play when people see that the pegged currency they are earning in Cayman has more buying power in its counterparty jurisdiction, the US, and therefore they will come out ahead earning the funds in Cayman but spending them in the US.  This leads to a net out-flow of money from Cayman, and provides support to the US economy at the expense of the Cayman economy. 

      There is a re-balancing in that Cayman businesses will eventually have to either shut down or compete with the US for the dollars, driving Cayman prices back down and terminating the employment of Cayman residents who can’t create work-product in a manner that allows the Cayman business to be competitive with the US competition.  Recession or depression will result locally until people are willing to work effectively and for competitive wages, and the Cayman businesses who compete with the US for those dollars start being competitive.

      Welcome to grad school.

    • Anonymous says:

      Actually Econ Professor… if Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling… then what difference does a peg to US$ make?! If by increasing a duty on fuel creates an accross the board increase in the price of everything in Cayman (and at the same time the purchasing power of the CI$ does not rise…) then we surely have a simple case of inflation! Your suggestion is that whilst prices increase and the value of the CI dollar doesn’t change becauseof its peg against the US dollar then that’s not inflation… well an Econ Professor you are not!!! Purchasing power can still fall no matter what our dollar is pegged to… if my dollar doesn’t stretch as far tomorrow as it does today then it’s value in exchange rate terms on the international money market is meaningless!!!

      In short, Ezzard Miller is correct and McKeeva knows it… hence why Big Mac is begging for the suppliers to absorb the cost!

    • SOON GONE says:

      It is very obvious that it is way too late to ask.  Cayman has planted weeds when they shouldhave planted vegetables.  Now that the weeds have taken over vegetables won’t grow here anymore.  Too bad.  Nice island. Going to pot.

    • A Lil Big Economist says:

      I don’t mean to be antagonistic, but, the Oxford Dictionary definition of inflation is:

      "2 a general increase in prices and fall in the purchasing value of money. "

      Therefore, in common terms, inflation is the general rise of prices in an economy over a given period of time.  If a new tax is implemented, it will result in a increase in the price of electricity bills etc.  Therefore, Ezzard is correct in warning about the impending inflation that will be associated with the proposed tax.  However, your argument is still semi-valid as Purchasing Power will fall if there is an increase of the monetary supply.  Yet, as you have pointed out, our monetary supply is fixed (due to the peg) and therefore the $ CI supply will not be the trigger for the inflationary episode.  But rather, it’s the implementation of the new taxes.  Which points to the heart of the dismay, prices are going up with a fixed monetary supply, and therefore, people will have to restructure their disposable incomes and possibly go without certain goods and services.

    • Gordon Barlow says:

      I think you are being pedantic.  There is a common term "price inflation", which has nothing to do with currency depreciation and everything to do with the prices we encounter in our everyday purchases.  You may regard it as a deplorable shorthand usage, but for the average man and woman, "inflation" means prices; and that is fair enough.

      • Anonymous says:

        Actually, he is not being pedantic, Gordon. Pedantic means showing off your knowledge while this fellow is showing off his lack of knowledge.   

        • Anonymous says:

          Though this subject should be dropped and I hate to support Gordon in anything 🙂 (I did not say I hate him; I said I hate to SUPPORT him), I am confident Gordon’s usage was correct and you are now being pedantic :-).

          • Gordon Barlow says:

            I think you should support my regular arguments for a cut in government’s annual expenditure.  Everybody who doesn’t support the cuts is by default a supporter of the status quo, and that support will damage Cayman’s economy irreparably, sooner or later.  Check out my last few "Everybody’s Business" columns.  It’s scary how many people believe that higher taxes are a sensible alternative to cutting government’s payroll. 

            Never mind the messenger: listen to the message.

          • Anonymous says:

            LOL : < ). Yes, I am, which means that his usage was incorrect. 

    • Anonymous says:

      Unfortunately you are incorrect.

      Inflation is measured by the consumer price index or standard "basket of goods".

      Despite the CI$ being linked to the US$ is it absolutely possible for Cayman to have a different inflation rate than the US.

      This may be caused by factors other than exchange rate such as the new fuel duty increase introduced by the government which will affect the Cayman basket of goods but not the US basket.

    • Anonymous says:

      I think you have this one wrong, my friend. Your definition is too simple and appears grossly inadequate to describe inflation.

      Please see wiki: inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.

      However, increases in prices of goods can sometimes ultimately have a deflationary effect as seen by what happened with the economy when the price of oil went to $150 a barrel. The FED reserve did not have to raise interest rates to take money out of circulation because the price of oil was actually having the same effect. Hopefully, people will now use LESS fossil fuel (less air conditioning?; which is a good thing) start to look at alternative sources of power (solar? wind? water?, pedal?; which is a good thing), so that the demand for fossil fuel drops, (thereby defeating Govt.’s attempt to extort more revenue from this source).

      However, as merchants MUST use fossil fuel to deliver their goods and services, as restaurants MUST use fossil fuels to prepare their meals, as defined above, this MUST result in a general rise in prices. 

      In case you missed my point above, the Govt.’s attempt to get more revenue for unproductive purposes should (necessarily) negate itself, as sensible people decide to do what is required to pay less (walk more, live less luxurious, and use other sources of energy-than a dying commodity like oil).

       

       

  10. Anonymous says:

    All any of the politicians seem to be able to do is keep looking for new ways to feed the insatiable government with new takes.

    Even Ezzard gets quiet when the discussion is moved to possible cutting the size of the civil servants in a country the size of only a very small city.

    Until the core problem of cutting the size of government will anyone be able to breath freely form the fear of more and higher taxes.

  11. noname says:

    Ezzard Miller for LOGB and Premier!!

    • Rabble Rouser says:

      Yea, just imagine your overheads when all the expats have been sent home and you are left sitting with massive amounts unused infrastructure and empty apartment blocks. Can’t wait.

      • LaudyLaudy says:

        Rabb le why are you so afraid of going home.  For Christ sake please hush about expatriates being sent home.  What the hell is wrong with you people any way.  Cant you understand  that this Island cannot hold all of the people that dont want to leave.  Try and be postive about the negatives and help instead of worrying about being sent home.

      • Jen Sharpner says:

        Ungrateful Rabble.   Cant wait.?  as you said.   Then what are you waiting for?   You see these are the reasons why Caymanians and expats are at war.

        Stop swaping the hand that is feeding you because you have to go home.   Ungrateful.

        • F.A. Cetious says:

          Dear Lord. Minister Anglin, could you please address the need for lessons in understanding facetiousness, irony, sarcasm, wit and humour in or schools immediately.

          By the way, mine is the irrevocable kind, you might want to get rid of me but you will never be able to. You can thank your Premier for people like me.

      • Anonymous says:

        Ezzard has never stated that he is anti EXPAT he simplay stand up for the rights of Caymanians. What kind of country would we be if we allowed foreigners to run all over us like garbage in the street ? Oh wait I have a few examples…

         

      • Anonymous says:

        that’s happening NOW dude!

    • Anonymous says:

      You have jokes, man-you have jokes!

  12. genetic mutation says:

    i rarely agree with ezzard, but he is right on this one – this will be inflationary. coupled with generally speaking higher oil prices (heading north of $80pbl) and this means everything from water to your kitchen cupboards will cost more.

    given that our grid is powered by large diesel, and pretty much everything we consume in cayman is transported (ship, plane) in here, we have to remember that cayman’s economy is critically linked to oil and as such fuel prices.

    the fact that cayman is so dependant on oil is an undeniable truism for cayman even more so than for other oil dependant economies such as the US. if caymans leaders were really visionary, they would be coming up with ways to address this rather than behaving like they are.

     

  13. Anonymous says:

    Well said, Mr. Miller. you are doing an excellent job of representing your people. We welcome your energy, assertiveness and sound thinking. The govt. should welcome constructive criticism.  

    • Dred says:

      North Side is getting far better representation than BT is. All we have is two yes men who couldn’t even say anything during the budget debate. If you even want to call that a debate.

      • Twyla Vargas says:

        Two yes men!!  and do we have a third one who cant talk or what.?   I thought we had three representatives.

        What is BODDEN TOWN achieving, will someone tell us.  Further more we have three representatives, 

        Does all thee have their mouth tape up and hands still tied?

        I wll be the first person to hold up my hand and say YEA!!!, I support, if either of the three can respond on this CNS and say yes this is what we have done and this is what we are doing.   We need results.

    • Twyla Vargas says:

      Mr Ezzard Miller you to us right now is like rain in dry weather.  I only wish you could do more.  But those of us who can read and undersand will know you can only do so much. Thanks