Archer plans fiscal prudence

| 08/10/2013

(CNS): Finance Minister Marco Archer said he was optimistic for Cayman, despite the difficult times, when he delivered his budget address to the Legislative Assembly Monday. The budget documents and appropriations bill are expected to be circulated Tuesday but in his address Archer said there were no new revenue raising measures and several cuts had been made in operating expenses. There were no indications of any tax or fee cuts as Archer pointed to fiscal prudence and discipline. The finance minister said government would be watching every dollar, as he laid out some of the cost efficiencies that had been identified to produce the budget, which is expected to produce a surplus of more than $100 million.

The government has set a high bar for itself, following years of criticisms of the inaccurate predictions of the previous administration and the need to find money for capital expenditure. The finance minister will now be under pressure to reach the ambitious forecast and improve the cash reserves of the public purse.

Archer said the budget aimed to get the fundamentals right, with accountability, transparency and prudence being the new modus operandi throughout all of government.

“The fiscal policy of the Cayman Islands Government over the medium-term adheres to the definition of fiscal prudence. Revenues and expenditures are planned in such a manner that instead of increasing public sector debt, such debt will be declining. Our fiscal policy targets a modest revenue increase that is non-inflationary, and at a rate that is below projected economic growth, so as not to stifle our fragile economic recovery. This will be accompanied by a decline in total government spending without compromising necessary social investments,” he said.

As well as reining in spending, he said, government would also be more rational in its approach to spending. “Our current fiscal position implores us to make tough but thoughtful decisions,” Archer said. “We must live within our means, and question every dollar the government spends, whether that is within a core government department or in one of our statutory authorities or government companies.”

He said there would be a greater emphasis on partnerships within core government and with the statutory authorities so units don’t work in isolation. Government had rejected general across the board cuts, the minister stated, but was practicing prudency while providing resources for healthcare, education and social services, protecting the borders and exploring opportunities for business prosperity.

Archer revealed that government had ended the last financial year with a surplus of $63.3 million. The prediction by the UDP government when it set that spending plan had been for more than $80 million. Government’s net assets were $1.3 billion, cash balance was $117.06 million and core government debt stood at $575.9 million.

The minister said that the 2013/14 budget was based on the four year fiscal plan sent to London in August, which was approved in days without the need for a defence of the plan, demonstrating the improved relationship between the UK and the CIG.

Government, he added, was focusing its revenue management efforts on encouraging economic growth through private sector investment, as well as improving the collection of revenues from existing measures by identifying and closing loopholes and limiting waivers and concessions. The administration also plans to pay down debt and, Archer said, “where possible restructure the debt portfolio to cut interest costs and remove potential uncertainties around the repayment of bullet bonds.”

He predicted operating revenues of $644.6 million and operating expenditures at $517.9 million, with the financing expenses forecast at $31.4 million, equating to an operating surplus of $95.3 million. After factoring in the forecast net operating surplus of the statutory authorities and government owned companies of $5 million, the entire public sector is forecast to record a net surplus of $100.3 million. Capital Investments are forecast to be $51.9 million and core government debt is expected to fall to $548.8 million with principal debt repayments of $26.3 million during this financial year 2013/14. Cash balances are to increase during the year by $44.9 million, growing to $161.9 million by the year end.

From that cash $59.9 million will be in the operating bank account and $102 million in the various reserve funds, such as the general reserve fund, the environmental protection fund and the infrastructure development fund, Archer stated.

“Even though we find ourselves in a surplus position, with today’s fiscal challenges comes the opportunity for government to demonstrate greater wisdom in spending the people’s money,” Archer told his colleagues in the Legislative Assembly. “The government’s revenue outlook is stable, and is not dependent on any unproven measures. This year will see the implementation of only one new tax measure, Licensing and Registration of Hedge Funds Directors. This measure was originally announced last year by the previous administration but was delayed in order to allow for proper consultation with the financial industry.”

He said the primary drivers of expenditure for this year are education and training initiatives; unemployment related issues; rising health care costs; rising crime rates; social assistance programmes; and new constitutional requirements.

Archer explained how government had managed to shave costs to statutory authorities and government companies (SAGs). Last financial year the government spent $110.8 million on outputs from the SAGCs. “For 2013/14 this has been reduced to $100.7 million by implementing a number of innovative measures,” he added.

The finance ministry held a meeting with the larger SAGCs in August, which led tosome cost saving measures. Archer explained that some SAGCs collect most of their revenue in US$ but expenditure is in CI$ but there were others that collected the bulk of their revenue in CI$ but purchased large quantities of US$ from the local banks for their overseas expenditure.

It was agreed that they would collaborate, whereby those with excess US$ cash would sell to those in need at a fair exchange rate,” he stated.  This foreign exchange management saved two entities almost a half million dollars but could be utilized further to save millions in future.

He said it was also agreed that the Cayman Islands Airports Authority (CIAA) would no longer charge rent to the Customs Department and the Immigration Department. Instead it will receive revenue directly from other coercive fees diverted from core government.

“The net effect of this decision is zero but the overall benefit is that it allows core government to reduce its operational expenditure and avoid the need for increased tax revenue, thus reducing the pressure to add to the cost of living and doing business,” Archer said.

Government has also taken a policy decision to exempt core government agencies and SAGCs from paying import duty, lowering operating expenditures for both the SAGCs and core government. Another area of partnership between the SAGCs and the core government was cash management.

“Based on their business cycles and the underlying cash flows there are times when SAGCs have surplus cash on hand lying idle, while the core government is running an overdraft. By partnering with the SAGCs to have them place their surplus cash on deposit with the Treasury Department, the government is forecast to save approximately $89,000 in interest expense by 31 January 2014.”

He said these were just four easily identified initiatives that reduced government's operating cost, and more were in the pipeline.

Archer’s forecasted expenses of $517.9 million represents a $6.8 million reduction on last year as personnel costs were cut, even with a provision of $11.4 million to be paid into the Public Service Pensions Fund for past service liability. Outputs from Statutory Authorities and Government Companies are forecast to be $100.7 million, which also represent a reduction of $10.1 million from 2012/13 because of the initiatives.

Government’s major spending outputs, however, include $14 million to fund overseas medical, $2.5 million to provide Legal Aid, $1.6 million to provide rental housing accommodations to persons in need, $1.5 million in funding to the Cayman Islands Private Schools Association and $1.4 million to fund the NCVO Pines Retirement Home. Transfer Payments increased by $1.5 million to provide funding for scholarships to the tune of $13.6 million; $7.8 million for poor relief and $6.7 million in seamen and veterans benefits.

The planned capital investments of $51.9 million is intended to fund $27.3 million in core government assets, such as roads, land, building improvements, vehicles and equipment. A sum of $24.6 million will be invested in SAGCs, primarily to fund the debt service obligations of these entities.

“Although our fiscal resources are limited, we are making investments where possible, while maintaining effective levels of support for our people,” Archer stated. “This budget affords us the opportunity to reshape government.”

See full Budget Address below and check back to CNS tomorrow for details of the Appropriations Bill.

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  1. Anonymous says:

    The worship of Mr Archer in some of these posts is amazing so let us hope it is justified. He worked in Finance so he very well knows the turkeys there-especially the main one- then he got himself a law degree at government's expense and got himself out of Finance to go work with Joel Walton at Maritime Authority-as several Finance people did because Joel is a laid back manager and the jobs in that authority (like many others) command mega bucks. So he has a lot of useful experience. Best of luck Mr Archer. Please remember fiscal prudence applies to the Statutory Authorities and Government Companies as well as the core civil service. That has not been the case for the last 20 years or more.

    • Anonymous says:

      Not worship – appreciation. It is refreshing to have a Finance Minister who is actually competent to do the job.

  2. Anonymous says:

    Where was C4C input on the budget?

  3. Foreign Devil says:

    Between Marco,Roy and the new Governor I feel confident that we are on the right financial track.

    • Anonymous says:

      Marco highlights what idiots we were in tolerating many years of a self appointed minister of finance who was totally uneducated and incompetent for the position.

      Hope the Mackeeva years are over for good, every week we see how foolish we were to put up with his madness with our country.


  4. Anonymous says:

    Where was Marco when Alden left the mess for the previous administration to clean up?

    Let's face it guys this was a walk in the park because the wheels were already in motion

    when he took over no real crisis was looming-get real. 

    Maybe the past Premier had his problems but his administration did an outstanding job

    in restoring and paving the way forward out of what was probably the worst recession

    to ever hit the Western World,I don't vote and never will but I must say the UDP did a hell

    of a job!

    Oh and by the way I just took my first drive to West Bay this weekend,man is that road

    beautiful or what.??

    • Anonymous says:

      Page being the key word. 

      As for the new highway… You are very easily amused

    • Know it all says:

      The civil service made this happened folks. I know for sure if we were in deficits the civil service would be blamed.  Well done. 

    • Anonymous says:

      Left himself with a lot of legal problems left the country with a damaged image Sorry you forgot those.

      By the way life is not all about the road. A new road always looks good.

      I personally had no problem with the road but I would really would have preferred this to go to a referendum. We had a petition signed up and it was compltely ignored.

      However once the deal was signed we could do nothing about it. It would mean that Cayman would have hadto pay dart a lot of money which we dont have.

      Could you people please man up and admit when your party messed up.

  5. Anonymous says:

    If the government is going to have $100m surplus how about giving us break on the gas tax? We are dying out here whilst the government is boasting about their surplus which is coming directly from taking us.

  6. Knot S Smart says:

    I really believe that this government will do everything in their power to bring back the economy and Cayman's reputation. And I know that Mr Archer is an excellent person to be in charge of finances…

    I am however concerned that the large tax increases imposed by the previous government will continue to make it impossible for businesses to thrive and create employment, and this in the end has a negative affect on government revenue.

    I believe that rolling back some of the high taxes will be positive not just for government revenue, but also the economy.

    For instance – roll back of the fuel import tax will result in less govt revenue in the short term – but it will boost the economy because it gives businesses and consumers less expense and that has a multiplier effect – electricity will be less, cost of transportation will be less, and the general cost of living will decline.

    Consumers and business will have more available funds which will increase spending in other areas and this will bring government revenue from increased import of goods. The economy will get a boost and with it government revenues.

    This might not be the best example but I suggest that government examine the pros and cons of rolling back some of the taxes imposed during the nightmare which was the last government's reign…

    • Anonymous says:

      In a nutshell – we need to get the cost of living back to a sustainable level. The way it is now, nobody has any money left after paying their monthly bills to spend anything in restaurants, shops etc

    • J Salasi I. -111? says:

      People remember when they promised you roll back of taxes ? Well I guess the original play book got lost. Sory fe Moga dog, Moga dog turn round bite ya.

  7. Anonymous says:

    This is great.  Now roll back some of the new fees.

  8. Anonymous says:

    How did the previous UDP government arrive at a surplus? Through new taxes.

    How is this PPM government arriving at a surplus. Through spending cuts.

    • Anonymous says:

      Everything looks good on paper..wait and see my  friend, wait and see!

  9. Anonymous says:

    Excellent job so far, Marco. As many have said, we have an expenditure problem not a revenue problem.


  10. pmilburn says:

    Finally a Finance Minister who KNOWS what he is doing.Kudos Marco and keep up the good work.Mr Bush are you watching and more importantly listening?

    • Anonymous says:

      Am no financial expurt, but a gaantee y one ting, I is ferewa honerable.

  11. Skil says:

    Agree! He's in a Class of his own……..out of 1983 too!    

  12. Dubya Bush says:

    “There’s an old saying in Tennessee — I know it’s in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can’t get fooled again.”

  13. Anonymous says:


  14. Anonymous says:

    so the crippling cost of living/doing business will remain the same????

    this is the biggest ting that has dragged cayman down over the last 4 years and now the ppm are going to keep it the same??????

  15. J Salasi I. -111? says:

    Jah Bless brother Marco. Ital.

  16. Anonymous says:

    Off to a good start Marco. Remember why you were voted in……BY the people FOR the people. I believe in you and that you will remain the humble, honest person that you are. You are a very principled person and a good example to others. You will always have detractors but press on and do the job you were hired to do. Do not back down from implementing unpopular choices, this is what has crippled every administration, including the one you are currently a part of. Do not become a "YES" man, do not bend to the polictical pressure of not doing what is right in fear of not being re-elected. When God is with you no one can be against you and what is meant for you, you shall receive. Remember wrong is wrong even if everyone else is doing it and right is right even if you are the only one doing it. God bless.

  17. Anonymous says:

    Well done Minister Archer/PPM, this is exactly the type of innovative thinking, collaboration and just good-old hard work that is needed in these times!  I hope the next things we see from this budget process show the emphasis to find savings by improving efficiencies throughout Government.

  18. Security - Stability - Prosperity says:

    True, all of this does not sound too bad. Mr. Archer could have done a lot better, though, as described years ago in the Miller-Shaw Report. What is preventing the CIG from selling off (or closing down) the Turtle Farm, Cayman Airways and all the other inefficient entities? Gordon Barlow has estimated that the total debt of $575.9 mln roughly equates the sum that has been wasted on the airline alone over the years. If you ask me, I would rather live in a debt-free country served by private, efficient carriers than in a deeply indebted one with a state-owned loss-making airline that comes at a cost of $31.4 mln each year in interest alone. What this figure means is that everyone, including grannies, nannies and babies, pays more than $500 in interest alone. Every year. Without even paying back any of the principal. Ah, and let us not forget future pension liabilities for the thousands of civil servants. They are not even accounted for, much less secured. So, Mr. Archer, the next time you talk about fiscal prudence, get serious, will you?

    • Anonymous says:

      I agree with you that the Turtle Farm is a waste of money, but Cayman Airways is a more complex issue.

      Take for example, we spend countless millions of dollars each year advertising for tourist to come to the Cayman Islands. By your logic, we should stop that since the government does not own any of the hotels and the majority of the revenue gained goes to the hotel and restaurant owners. However, government does get some revenue from hotel tax and import duty paid on the booze and food consumed by the tourist.

      Cayman Airways is an important cog in a complex set of wheels. Having a reliable air service not subject to external whims is of far greater value than the cost associated with owning and operating our own air service.

      If you look at other small territories without their own airlines you will find that from time to time large corporations such as American Airlines will hold them hostage and they end up paying the airlines millions of dollars out of government coffers so that the airlines will continue with what they deem to be "loss making" routes.

      If we shutdown Cayman Airways we will eventually end up paying the same subsidies to some other airline that we have no control over. At least with Cayman Airways we can set the schedules and can see the happy employees that are provided with airline work without having to leave home. The multiplier effect of every dollar spend on Cayman Airways has a huge impact on our economy. That is not to say that it should not be monitored closely and subsidies kept as low as possible.

      Of course, if you subscribe to Gordon Barlows theorems you might be living in a little world of your own as well.

      • Anonymous says:

        Privatize it and give some government protection on pricing. Let the private sector run it so it, oh, I don't know, operates to make a profit…


      • Security - Stability - Prosperity says:

        Compare an entrepreneur to a civil servant, and you will see why private businesses will always be more efficient than the public sector, including state-owned enterprises. An agency to promote tourism makes sense only if it is operated by the private sector, e.g. as a trade association. If you ask me, the hotel tax should be done away with because it does not at all fit in with Cayman's tax system and discriminates one sector of the econonmy versus all the others. I am not sure if every hotel owner pays his (un)fair share in the first place.

        As far as the airline and its horrifying deficits are concerned, I thought the days when bearers of bad news were beheaded were long gone. Why should the CIG pay every traveller who fancies to go abroad part of the price? Why should everyone pay for the benefits of a few? This is simply a waste of the taxpayer's money. The debt of $576 mln accumulated by the airline amounts to roughly $10,000 per head (including …, you know). No multiplier effect will ever make up for $575,900,000. Quite the opposite: Local shops are closing down because subsidized travellers prefer to spend their money in Miami and bring back home lots of goodies not only for themselves, but for their friends and relatives as well.

        There are privately-owned carriers that make profits and would be only too happy to compete for the Cayman routes. They can embed Georgetown in their existing route network, thereby achieving economies of scale that small Cayman Airways never could. I can see no danger of blackmailing. If one carrier pulls out, there will be two others to replace it. There may be fewer destinations, or not as many direct flights, but air service to and from Cayman can be operated profitably. Not by a state-owned airline, though, where half the passengers seem to get a free ride and where no one needs to focus on profits, costs or efficiency since at the end of the day, the CIG will pay the bill anyway.

        Cayman is simply too small to support an airline of its own. It is not sustainable. Trying to fill a bottomless barrel has never been a recipe for economic success. Instead, if every Caymanian had invested or spent $10,000 more in the local economy, then the multiplier effect would have come to fruition, Cayman would be a lot better off today, the government would be debt-free, and there would be no recurring interest payments of, you know, $500 per head each and every year that is a further drain on the economy.

        The question is not so much "Should Cayman get rid of its airline", but "When …" and "How …". The longer we wait, the more painful it will get. If my name was Alden McLaughlin, I  would tackle this issue today rather than tomorrow.

      • Anonymous says:

        Well, I can only say that in my little world, my "theorems" – as you call them – are very widely accepted, as relates to the wastefulness of Cayman Airways. Yes, there is a sentimental case for keeping the airline, but there is no economic case. If you believe that sentiment is worth paying for, bully for you; but I don't believe it is worth paying heavy taxes for it.



      • Anonymous says:

        Happy Cayman Airways employees – thats a joke. They all love the airline, hate their management and simply are apathetic employees as they need jobs to pay their bills. The airline does not need to closed down, they need good honest, compassionate management that cares about Cayman and not about lining their own pockets. CAL is a critical 'cog' as you have said i the wheel, the high paid management is not, especially those that are all protecting their friends in similarly highly paid positions.

    • Anonymous says:

      Take CAL private and offer some government protection in exchange for guaranteed service during hurricanes, etc…

  19. Anonymous says:

    all might not go as planned , but Marco wants the best for the country , not just his paycheck .

  20. Anonymous says:

    So proud of Marco. He is the only new member I can relate to. His humbleness, good nature and hard work is a wonderful sight to see. The best PPM has. Next Priemer in my books.

    • Anonymous says:

      You go show them how it's done and continue to pull in the sails and do not forget the jib.

      You guys can become the best Govt ever, just do what you have to do and get it right the first time.

      Demand performance and excellence the people will eventually understand and respect will come if people are not disgruntled you are doing a bad job. critism will make you all stronger and help u along the way. Think Cayman Islands 1st. always first.

    • Anonymous says:

      I beg to indorce your comments.