‘Austerity doesn’t work’

| 10/06/2013

k1264324.jpg(CNS): As a Cayman delegation heads off to the UK tomorrow at the invitation of the UK prime minister, the local government representatives will also be meeting with the FCO’s overseas territories minister, Mark Simmonds, on Thursday to discuss Cayman’s budget situation. Premier Alden McLaughlin is keen tonegotiate some leeway for the CIG and said Friday that “austerity doesn’t work”, referring to the fact that an economy cannot grow without some means of stimulus, as is evident from the failure of any of Europe’s economies to rebound. McLaughlin has said previously that Simmonds is open to negotiation and, as the new government begins to prepare the budget for the 2013-14 fiscal year, the premier said he did not want to further burden the tax payer with more fees or make dramatic cuts.

“Prudence is one thing but look at what austerity has done to economies in Europe,” he said on Friday, speaking on Radio Cayman’s Talk Today programme. There is balance to be struck, he said, warning that going to extreme measures or major cuts to jobs or services placed the local economy in danger of collapse. 

Admitting that there were a number of challenges arising from the government’s “precarious financial position”, he also noted that this was now the lowest earning period for government revenue and he would need to extend the overdraft in order to pay bills. Although the Treasury still expects to have a projected surplus for this financial year, it is less than that originally projected.

The premier must go to London to deal with the issues relating to the forthcoming G8 meeting and Cayman’s recent commitment to the latest OECD initiative on tax and transparency issues, but he has also scheduled a meeting with Simmonds to address these issues.

The premier explained that he will be talking directly about the budget challenges and was hoping, he said, to “arrive at a better place than we currently are”. After the new government was pulled together, it was entirely occupied by the G8 tax and transparency issues and the budget.

McLaughlin said that restoring confidence in government and Cayman in general would have an impact on jobs, but he pointed to the need to get moving on the cruise berthing project and the airport redevelopment. He said, however, that the government needed some leeway from the UK to inject funds into the local economy.

McLaughlin pointed to the priority of getting people back to work. “We do know that employment is a major factor and we have to do a number of things on a number of fronts relating to stimulating the economy,” he added.

Confident that he and his new government could make the necessary changes to get Cayman back on track, he added, “We have extraordinary opportunity to do really good by this country,” he said. “We have put together the best team the country has ever had to administer its affairs … I really do believe it would be a great disappointment if we did not do great things for this country over the next three or four years.”

Despite the difficulties faced by McLaughlin and his new administration, he said he was very optimistic about the future and felt the mood of the country was good.

“There are challenging times ahead but I am hugely excited by what is happening,” he added.

On return from the UK at the end of this week, the government will have just two weeks to bring an interim budget before the Legislative Assembly in order to tide it over for a maximum of four months until the new administration can pull together its own spending plan. 

The fiscal year ends on Sunday 30 June, which means that on Monday 1 July the government will have no authority to collect or spend anything unless an emergency appropriations bill is passed by the LA beforehand. 

Vote in the CNS poll: Are you optimistic about the future economy of the Cayman Islands?

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  1. Anonymous says:

    Speaking of the need for prudence, anyone (CNS?) any idea what class our folks flew over to the U.K. on?

  2. Anonymous says:

    Cayman would not know austerity if it hit it the face, carrying a big sign saying "Hi I am freakin' austerity".  Cayman has not had any austerity measures, just a bit less profligacy, and that the profligacy will only increase with the new government.

  3. Anonymous says:

    So let me get this straight. I get into debt by spending more than I have and then I go and tell the bank it's not working for me. So they give me a few more credit cards and a loan for a new car.

    Alden, you are either executing a very wicked agenda to enslave this country through debt or you simply do not have a clue. Which is it?

    This is precisely why I did not vote. For what? Blind guides leading lemmings. I did not vote for any of these incompetents and I am proven right.

  4. Whodatis says:

    Reading the comments and suddenly feel as if we are in the Twilight Zone.

    Do we understand that it is against the backdrop of the UK government and its economy that we are making these statements??

    Boy, I wish I was afforded such indemnity in my existence – must be nice.

    While we're at it, someone call up Belarus and Zimbabwe. We're planning a democracy forum to be held on the 4th of July and would greatly appreciate their insight and assistance on the matter.


    • Anonymous says:

      Ok you have one third of a seat in parliament, (size the Cayman electorate is about one third of a UK constituency).  Then you can also have income tax, capital gains tax, corporation tax  . . . No representation without taxation buddy.

  5. R Carville says:

    Austerity has to work for Cayman. This country has had 25 years of boom and the PPM and Premier McLaughlin has to understand the country cannot afford the same methods and attempts by the elected government and the Civil Service to drive the economy.

    This PPM Govt must provide, regulate, legislate and promote an environment for economic stimulus and growth not pretend that it is a developer building infrastructure that does not generate revenue to help the country meet its liabilities. Let free enterprise and th private sector drive the process but have clear and consistent guidelines from the outset.

    The construction politics of the previous governments who built monuments and who will consider building more expensive schools, roads and office accommodations and physical infrastructure is not the solution. However, neither is giving away tens of millions in potential revenue to Developers who have yet to keep their promises of stimulus, growth and inclusion for Caymanians and Caymanian owned and operated business that do not make the “approved” lists.

    There are no easy solutions and quick fixes to what ails our Country. Increasing sovereign debt and not taking corrective steps to lower operational expenses is a disaster waiting to happen. The Cayman Islands is playing right into the hands of the FCO unless a common sense approach focused on being fiscally responsible is the core objective we are sealing our own fate as a Tax Neutral jurisdiction. Failure to do so will accelerate the need for direct taxation like VAT, property tax and Income tax which each Caymanian and resident will be obliged to pay.

  6. The lone haranguer says:

    Dear sir, do not even talk about austerity, we are not there yet, cut the fat and start from the top, then sir we can begin to talk about austerity.

  7. Security - Stability - Prosperity says:

    Let's hope the FCO says firmly "No!" to any additional debt. Mr. McLaughlin, why do you think anybody should have confidence in a government that already has a large debt (wasn't the number $260 mln?), puts no money aside for repaying it, but wants to borrow even more? Who do you think is to repay that debt? And when? Your successor? The problem with jump-starting the economy by deficit spending is that the deficits are never repaid even if the times are good. Just take a look at Europe: The countries that suffer most are the ones with the highest levels of debt, whereas those with (relatively) sound fiscal policies are a lot better off.

    As far as I am concerned, I have more confidence in a government that stops wasting millions and millions on Cayman Airways, the Turtle Farm, the NBF and the bloated civil service. Most Caymanians and thus most voters are still not civil servants. Their benefits should be brought in line with those of the private sector. Their second jobs should be prohibited. Their legal retirement age should be enforced. A voluntary retirement scheme for public employees who change to the private sector should be put in place. Former top civil servants should not be paid six-digit salaries for years for doing nothing. Government accounting should be done properly.

    These are just some measures that are quite straightforward and easy to implement for "the best team the country has ever had". With all the milions saved, the loan that comes due in 2019 can easily be repaid and customs duties can be lowered. This would benefit all Caymanians since they would have more money to spend and thus help the economy recover. New jobs will be created by projects like the Shetty Medical Center, the cruise ship berthing facility (that should be put up for public tender), and the new waste management facility that should be built, not prevented.

    I doubt if Mr. McLaughlin and "the best team the country has ever had" can master the challenges ahead. The good news is: If they don't, they will be kicked out of office in four years' time. The bad news is that four years is long enough to mess up a paradise.

    • The lone haranguer says:

      England has cut hundred of thousands of government workers, I believe they are going to tell Alden the same thing Jackie Doak told him,”keep your word” stick to the plan.

    • Anonymous says:

      I couldn't agree with you more. If the Premier is looking at Europe, perhaps he should be taking a closer look at Greece for example. The people in Greece abused the systems for decades. They have not paid their taxes, Civil Servants have been paid outrageously high salaries while being ineffecient and corrupt at the same time. The whole country had used a public transportation system funded by the Government without ever payint for the fare. Why? Because everyone could get away with it, there weren't any consequences until recently.

      A lot of the same things are taking place in Cayman. A few examples below:

      1. People are always looking for ways to get around paying the proper import duties

      2. We have Civil Servants on a pay roll who don't show up for work for days at a time or haven't been putting in a full days work in ages because they are too busy running their ownbusiness on the side

      3. We have Civil Servants on the pay roll who have been suspended but the situation has never been properly resolved

      4. We have Civil Servants on the pay roll who have retired and then been hired back as Consultants

      5. Government continues to pay 100% health care coverage for all Civil Servants AND their dependants instead of taking a note how this is done in the private sectors where employees at least have to pay a portion of the healt chare coverage for their dependants

      6. The Government is paying for the transportation of all school age children attending public school. Why? Shouldn't this be the responsibility of the parent?

      7. The Government eliminiated the annual school book fee it once used to charge. Why?

       8. The Government continues to fund the Turtle Farm instead of admitting failure and reverting back to what it once used to be – a Turtle Farm only!

      9. The Government continues to allow that many, many ex-Cayman Airways employees, and ex-Cayman Airways board members receive travel benefits (if not free travel altogether) depsite the airline having to be subbed by the Government each year. Why?

      You see, we are not that much different from Greece because for politicial reasons, the Governments over the last 10plus years have made the people believe that everything is ok and that everyone is entitled to the free rides and perks. There has been no repurcussion for circumventing the rules and regulations.

      Well now it has caught up with us and just like Greece, we are looking to blame everything and everyone else instead of looking at our own wrong doing.

      I really had high hopes that this Government would have the balls to deliver some difficult and perhaps unpopular messages to get the country back on track. Now, I am not so sure anymore………


  8. Anonymous says:

    Who is going to London? Please name the delegation.

    • Anonymous says:

      Anon 16:10, as far as I know the delegation consist of the Premier Alden Mclauglhin, the Finance Minister Marco Archer, theFinancial Secretary Ken Jefferson, and the Minister of Financial Services and Enviroment Wayne Panton. Just the four of them, no extra entourage and baggage.

      • The lone haranguer says:

        What about Ju Ju,? she knows all the nice places to stay and go, she could show the boys how to have a good time.

    • Anonymous says:

      Tough times call for TOUGH measures. Mr Premier please increase DUTIES, GOV FEES and bring in some form of TAXATION on both Business and residents to make for any shortfalls in budget. WE SUPPORT YOU FULLY !!

    • Diogenes says:

      and given the Premiers comments on cost savings on class of travel, are they flying premium economy or business?  Or des that apply to lesser folk – like the governor who flys 1 class back. 

  9. Anonymous says:

    Cuts can be made without layoffs.  Many govt's internationally have scaled back hours without firing staff.  In a 4 day work week, the same amount of work gets done in less time.  Proven and cost effective savings, with no layoffs, and employees like getting an extra free day every week.   

    • Anonymous says:

      But they don't like the 20% reduction in wage. Not sure I could support a family if I lost 1/5th of my wage.

  10. Anonymous says:

    Austrerity doesnt work? Maybe, depends what you think austerity is!

    If you spend too much, ie more than you can afford, then is austerity simply cutting back to what you can afford? It is too easy to describe living within your means as austerity, because thats what you should do, and yes it might appear to hurt if you are used to easy money, but it is not austerity!

    • Anonymous says:

      Mr. Premier,

      Tax and spend, borrow and spend, does not work in the long term.

      Look at the US and the UK with their excessively high national debt, their economies are unsustainable.

      Yes, be conservative, hold back on spending, allow only development that pays the Cayman Islands. 

      Please say a very loud NO, NO to those developers that come begging for duty free, no planning fee, keeping tourism tax developers,

      A conservative Caymanian.

  11. Anonymous says:

    Yep, austerity doesn't work……  I have an idea, why don't we spend hundreds of millions of dollars on new schools and a government building.  Oh wait, we've already done that and how did that work out for us?

    We don't have the funds to build the cruise berthing facilities or to redevelop the airport.  The only way those projects are happening is through the private sector not by increasing the already painful debt burden we've been saddled with.

    Oh and great idea leaving the dump where it is.  Let's keep piling up that garbage in the heart of our tourist product.  How many other top tourist destinations can boast of a stinking dump a few miles from their pristine beaches? 

    • Anonymous says:

      You sound bitter. Do you miss boom- boom bush?

      • Anonymous says:

        Not at all, couldn't care less about the guy, just stating the facts my friend.  Spending beyond our means is not the answer…..

  12. Anonymous says:

    It is quite clear that Austerity in a vacuum does not work, but nor does spending excessively more than you have, particularly where the spending is not necessary or even wasteful.

    There are many ways in which employment, including the employment of Caymanians (which must in my view be at the forefront of any considerations), can be generated and the position improved.

    Although a third of employed Caymanians are employed in the Civil Service, it is perfectly possible to achieve a reduction in the civil service without losing Caymanian jobs in the economy.

    Government  has an incredible opportunity to get Caymanians back into the private sector workplace, provided it acts quickly.

    There are a great number of highly talented and very will hard-working persons in the civil service whose careers are hampered by a lack of upward mobility and a failure by the civil service to be as agile as it might  in recognizing talent and ensuring it is in the right place. Upward mobility is also hampered in the Civil Service by the non implementation of the Immigration Law (but that is another topic).

    Depending on how Government  chooses to address the term limit exemption permit issue, something of the order of 2000 positions presently filled by expatriates are likely to be becoming available within our existing economy within the next six months. There are many Caymanian civil servants who could be very productively engaged in many of these roles. Given the sad reality of a cultural predisposition against taking the risk in employing an untested Caymanian compared to the best which the globe has to offer, many opportunities are not fully made available.

    It is of course on occasion appropriate to use a stick (even a big one) to beat the private sector over the head in those instances where opportunities are not being appropriately provided to local persons. Nevertheless, it would appear quite straightforward for our Government to develop a system of incentives (carrots) to encourage the private sector to employ persons in the civil service. One proposal is for a system that would work along the following lines:

    The civil service be called upon to determine  those persons who are not mission critical to its efficient functioning. For a defined period, the private sector could then be invited to seek to employ those persons, with those individuals also invited to seek opportunity in the private sector. Government could limit participation to 10% of the civil service in each year.

    Any civil servant that found private sector employment in the period and was participating in the program would continue to receive (say) 20% of their salary for the first year, from the Government, together with the civil service pension and health entitlements. In the second year of private sector employment, the civil servant would be expected to have moved onto private sector pension and health arrangements, but their salary would continue to be 20% subsidized. In year three, the subsidy would cease and the civil servant would be fully employed as a private sector employee.

    It would be between the Civil Servant and their Private Sector employer to negotiate what aspect of the Government Subsidy formed part of, or was in addition to the negotiated private sector salary. The most desirable former Civil Servants could well find themselves with in effect a Government paid uplift on a full private sector salary.

    The private sector would therefore be able to benefit from access to Caymanian employees  at a subsidized rate (with at the very least, government covering healthcare and pension costs) whilst  achieving an immediate and substantial reduction in the civil service workforce, with corresponding significant  savings to the government.

    Many highly capable Caymanians in the civil service would gain assistance in transitioning into the private sector with no loss of employment.

    Any concerns as to the need to replace outgoing civil servants to have necessary services fulfilled could be dealt with by a corresponding process of modernization. For example, online bill payment and payment of (say) parking tickets and administrative fines would reduce the need to have as many civil servants and allow the government to operate at a substantially reduced cost.

    If necessary, the government could even guarantee that any civil servant operating within the program who lost their job (other than for termination for misconduct) could go back to the civil service. At worst in such circumstances the civil servant service would have an employee who (perhaps unlike previously), now had valuable private sector experience.

    Other substantial savings can be achieved through having greater consideration to the practical efficiencies of rules which might otherwise be arbitrary. For example, making Cayman Islands drivers licenses valid for seven years (instead of 5) would match the needs of most work permit holders under much under the current system and at the same timereduce the needed attendances (and interaction with licensing staff) by some 30%. Garbage fees and the like could be reintroduced (they should be) and charges collected not through a substantial civil service mechanism but effectively for free by having the charge added to an appropriate utility bill.

    I do not suggest that these ideas alone would cure all of our ills, but some may well be worthy of detailed consideration. There are many other ideas which should be considered and in this context I refer to 3 suggestions from today’s comments on an article in the Caymanian Compass that also make potentially significant sense. With apologies to their original author, these suggestions were:

    1. Sack the top-paid civil service executives. They do not only draw the highest salaries, but they are also entitled to the highest pensions that no one knows how to pay when they retire. So letting them go would yield the biggest savings for the public purse. Plus, they are the ones who most easily find new jobs in the private sector.

    2. Introduce a voluntary termination scheme with increased severance pay. Every civil servant who leaves would be entitled to, say, a month's salary for every year she orhe has been working for the government. True, this would cost in the short run, but save a lot in the long run.

    3. Make public sector employees pay for their medical insurance like everybody else. First, this is no more than fair. Second, it saves the government money. Third, it makes the public sector less attractive as an employer so that more people would seek jobs in the private sector.

    A lean government would boost the economy, create new productive jobs and increase the welfare of all Caymanians.

  13. Reality Check says:

    Either does living beyond your means….

    • Anonymous says:

      Exactly!   Something has to give.  A rationally scheduled plan of  staff reductions over time, coupled with graduated pay reductions (ie, those making in the lowest 25% have no cuts, graduated up to the highest 25% taking 10% cuts. ).   You can be everyone's best friend by buying great gifts on your credit card for everyone at Christmas, but when you try to pay that credit card in a few months then will regret this.                                                                                                                               

    • Anonymous says:

      and spending beyond the people's means

  14. Whodatis says:

    I generally support Alden's position.

    However, considering the dismal state of the UK's economy and its current international standing – I doubt Cameron or Simmonds will be convinced by your perfectly logical argument.

    The money-printing British government is a very spiteful and fickle entity. They are not likely to allow one of its lowly territories to outshine the "mother" – and we are doing so despite the restrictions forced upon us thus far. (Again, I welcome any and all debate in that regard.)

    Say what you want but this is what the situation boils down to.

    Also Alden, be sure to ask him about the curious changes in UK legislation and regulations that allows for certain financial services, formerly prohibited and usually carried out here, to be accomodated onshore. (I'll see you readers in the morning.)

    Nevertheless, I wish you all good luck guys!

    * When do we begin our talks on our inevitable independence Cayman? Or are we waiting on permission from the colonial economic oppressor to engage that discussion as well?

    • Event Horizon says:

      He is collapsing into a parody of himself.  It is Whodatis Black Hole from which no sensible argument can possibly escape.

      • Diogenes says:

        Interesting analogy.  Perhaps one could say that the Whodatis Black Hole is not governed by General Relativity, but UK Relativity 😉

    • Anonymous says:

      I see you have allowed your inflated sense of importance to extend to Cayman as a whole in this post. In what way, except for the wonderful Caribbean sunshine we enjoy here, does Cayman outshine the UK? 

      Did Cayman's hosting of Usain Bolt outshine the 2012 Olympics? Did Cayman's athletes win more medals than their UK counterparts? Would Bodden Town SC beat Manchester Utd? Are ICCI/UCCI better facilities for learning than Oxford or Cambridge? Does the national gallery compare favoruably to the Tate Modern? Is the east/west highway a comparable feat of engineering to the Humber suspension bridge? Is Barefoot Man a better entertainer than the Rolling Stones? Does the Turtle Farm compare to Whipsnade zoo? The list could go on and on. Think of a category appropriate to both countries and the UK's best will soundly beat Cayman's best.

      My comment is not an insult directed against Cayman, but a recognition that in the world outside of your head, the scale of the UK and the scale of Cayman make comparisons meaningless. Unfortunately you totally lack a sense of scale and your prejudice against the UK continually leads you to overlook the many positive attributes of that country. 

      I have accepted your challenge to illustrate why Cayman does not in fact outshine the UK and is unlikely to ever do so. Here is my challenge to you: stop asking when the debate on independence will start and actually write something meaningful. Explain why you believe that the financial service industry, on which Cayman's wealth is largely based, will remain materially unaffected by any move towards independence. Feel free to support your position with research carried out with the generators of business in overseas jurisdictions, rather than your usual unsupported rhetoric.

      • Whodatis says:

        Oh dear.

        Who is going to explain to this poor chap that he completely missed the point I was making?

        Talk about a waste of kb's and bandwidth, lol!

        Basically, your lack of understanding renders you unworthy of my time to engage in any meaningful debate with you.


        Yes, this is my opinion and unfortunately for you – it is the only one that matters right now.

        • Ed says:

          Perhaps you could try to writeand explain yourself more clearly.  I too seem to have missed the point.  

          Apart from the most wonderful climate, Cayman has very little going for it.  It has a service based economy but it is doing all it can to destroy the attractions that bring tourists to it in the first place.  It is also a very expensive place to visit.

          Why would anyone pay $x a night in Cayman when they could pay a fifth of the price to stay in a place with the same climate but unspoilt natural beauty such as in Dominica?  I didn't.  That's where I went last month and where I will go again in December.  

          I imagine that you will almost certainly say that you are pleased to hear that I won't be coming to Cayman again but I think that you will miss my many thousands of dollars much more than you miss me.

          • Anonymous says:

            If you have such a low opinion of Cayman and have no intention of visiting here but plans to visit Dominica instead why are you bothering to post on CNS? Just asking. 

            • Ed says:

              Good question.

              I lived in Cayman for 7 years, leaving in 2009.  Since then I have been back several times on business.  It was beautiful in 2003 and apart from the 7 Mile Beach zone, largely unspoilt.  We had seven blissful years.  Look at it now!  It looks like a down market copy of Ocean Drive, Miami Beach.

              If I want a Caribean holiday with my family, I refuse to pay the exhorbitant prices charged in Cayman.  Have you been to Dominica?  I doubt it.  Caymanians never go there.  It's still the way that I hear Cayman was 50 years ago.  

              Not only is it visually stunning but there is a variety of fauna  that is sadly lacking in Cayman.  There are humming birds feeding from nearly every flowering bush/shrub and added to that, there are whales to be seen just offshore. 

              Answer this honestly:  Apart from the beach and Stingray City, what else is there for a family to do in Cayman?  It was largely because of our children that we couldn't wait to leave – and will never come back!

              • Anonymous says:

                We get it. You don't like it here and won't come back. Please stop posting on CNS then. Unless of course you are the Tourist Board from Dominica.   

        • Anonymous says:

          As I expected – nothing meaningful to say.

  15. watching closely says:

    True austerity doesnt work. but you have 2 senior civil servants being paid 250k per year in total and they actually don't have a current job. what are you going to do about it? I am not saying you have to get rid of them because i know they were put in this position by politics. but you need to address that issue head on even if it means 1 or 2 jobs are lost elsewhere in the ministry of finance.

    I am a supporter but if i am hearing things like this 6 months from now I will become very very concerned Mr Premier.

    • Anonymous says:

      Never realized they were making all that money. No wonder government has to be borrowing money. We need to start from those top salarys and also the politicians reducing by half, no less. They all need to feel the pinch of the tight shoes too. We cant even afford to keep our cars that we drive to work insured. Then we work much harder than them. NOT RIGHT….

    • Anonymous says:

      One solution for these non-working civil servants send ms. drummond to the London office to replace Lord Blencathra even with her high salary this could save the Cayman government over $100,000.00 per year.

  16. Anonymous says:

    What a fool he is proving himself to be already.  Properly implemented austerity works very well.  The growth in the Greek economy evidence that.  But the other weaker southern European nations whave made it clear they lack the political will power to implement proper austerity.  The UK shoudl make it clear to Alden that with his party's track record of wasteful spending not one dollar will be made available as lending.

  17. Anonymous says:

    "…………that an economy cannot grow without some means of stimulus".   Get that list bit of road closure gazetted immediately so Dart can continue the development of the new resort.