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Solutions vs politics

I write to discuss the acute political, financial and reputational issues facing our country and the need for our collective behavior and decisions to reflect the seriousness of the situation. The focus must be on solutions. I will deal first with the political issues. When I resigned as a member of the PPM in 2010 I said that we had made a mistake in embracing the Caribbean model of party politics and encouraged other party members, from both parties, to admit our collective mistake and to change course.

It is important for us to recognize and acknowledge when our country started on this pronounced downward trajectory. It was in 2001. It is no coincidence that 2001 was also the year that we embraced and introduced party politics in Cayman.

Since 2001 both parties have been focused on remaining in power and winning the next election. Prior to 2001, when there were no political parties, governments were traditionally given two terms to implement their agenda. Since party politics came into being good governance and effective policy making have taken a nosedive and voter frustration has grown exponentially, which has resulted in each government being given one term only. Our society has become more divided and the unity between Caymanians and expatriates, which was hitherto the cornerstone of our success as a country, has all but disappeared. There is widespread political victimization as well as politicization of our civil service. Our continued denial of these glaring realities is the reason why the downward trajectory continues.

The solution to our political problems must therefore be to vote in the 2013 general elections to  elect a coalition government consisting of a good mixture of candidates and begin the process of disbanding political parties. This will force the 18 MLAs, irrespective of their political views, to work together to form a government. You would still have the all important check and balance of an opposition to government when members, unrestrained by party rules, feel the need to oppose government policy.

I now turn to the current budget crisis. We all know how we got here and both the PPM and the UDP must share in the responsibility. As citizens we must also acknowledge some responsibility as our demands on government for services and favours are very hard for the party in power to resist. It is important that we all acknowledge that nothing is for free and every service and favour provided by government must ultimately be paid for by all of us. Government does not automatically generate money by its mere existence. So nothing is free and we must all pay, one way or the other, directly or indirectly, for government to operate.

Tinkering with our  revenue and expenditure, such as was last proposed by government, will do nothing to balance our budget in the medium term. If we continue this band aid approach the UK will never approve our budget and could ultimately assume absolute control of our finances by suspending section 54(1) of our 2009 Constitution which mandates that a Minister “shallbe charged with responsibility for finance.”

The government must focus on expenditure and implement a medium term plan to bring it in line with what is considered sustainable for a country with our tax regime and GDP.

Let us look at some significant spending that could be eliminated from our budget during the next two financial years. It is important to note that I do not have access to the government’s draft budget so I can only make recommendations about what I have personal knowledge of.

The size of the civil service must be reduced but that can only be done over time and on a phased basis through collaboration with the private sector but planning and execution must commence now. It would be wrong, for many reasons, to convert a large number of civil servants to ‘unemployed status’. This would result in unnecessary hardships on our families and cause a further downturn in our economy as those salaries are removed from circulation locally. At the same time it would increase government’s expenditure as more and more people seek government assistance to survive.

Therefore, an integral part of the programme must be to transition some civil servants to the private sector so as to ensure that their income is protected while simultaneously reducing government’s expenditure and providing labour for the private sector. The aim should be to reduce government’s expenditure on salaries by $10M annually over 5 years, which would represent a total reduction of $50M in expenditure. On the basis of an average annual salary of $39,000, this equates to the migration of approximately 256 civil servants to the private sector annually over a 5 year period for a total reduction of 1,280 civil servants. With an average of 19,000 work permits in existence annually, this is easily achievable.

The following additional actions could be taken to reduce expenditure :

1. Cayman Turtle Farm Island Wildlife Encounter –  Close all components of this attraction except the Turtle Farm related operations. This would allow for the subsidy to be reduced from $9M to $1M, an annual savings of CI$8M;
2. Tourism Attractions Board – Privatize its operations, including Pedro Castle, the Botanic Park, Hell and the Craft Market and save approximately CI$1.4M in annual subsidy;
3. Cayman Airways – The Panama and Dallas routes should not have been launched in the middle of a budget crisis and a global recession. Immediately discontinue these routes and eliminate the approximately $1.5M marketing and operational budget associated with them. Reinstate the implementation plan for the Lufthansa Consultants Report which was commenced in 2008 and this will save the airline approximately $2M annually. This should convert into a $2M reduction in government’s annual subsidy to Cayman Airways;
4. The Nation Building Fund – This has been justified on the basis that our children need money for scholarships and our churches need money for ‘nation building’. Yet we have properly functioning Education Council and Ministry of Tourism Scholarship programmes with properly established criterion awarding record numbers of scholarships annually. Our churches have an obligation to act as a moral compass for our society rather than inadvertently promoting greed through accepting government’s patronage. Any money given to churches for infrastructure projects, such as hurricane shelter space, is easily justified but must be properly funded through government’s capital development programme and not through this illusive creature called a “Nation Building Fund”. Eliminate it and save $4M annually;
5. Government Administration Building – Mandate all remaining government agencies that were slated to move into the new Government Administration Building to do so withoutfurther delay. This could save the government approximately $2.5M in lease costs annually; and
6. Health Services Authority – Implement and enforce more prudent policies and eliminate the significant waste by mandating the HSA to deliver its services within the $8M annual subsidy. This would save on average $12M annually by eliminating the need to provide large allocations of supplementary funding. Health care subsidies to the HSA have continued to increase to unsustainable levels growing from a total of $17M in 2009/10 to $19M in 2010/11 to $27M in 2011/12.

On the revenue side, if sufficient resources were made available to the right agencies the proposed revenue measures for this year would be unnecessary.

I am advised that if sufficient resources were deployed to enforce the Proceeds of Crime Law, $60M – $70M could be deposited into the government's treasury in this financial year alone. Why is this being ignored ?

My recommendations, if pursued, could potentially save the government $41.4M annually and much more over time. Revenue in this 2012/13 financial year could improve by $60M – $70M.

Finally we must look at what must be done about the significant reputational damage that has been caused to our country in recent times when good governance issues have arisen and when announcements about direct taxation sent shockwaves throughout our local economy. This presented yet another platform for negative international media coverage about the Cayman Islands.

Much damage has already been done to our economy but there is no point is crying over spilled milk. Let’s clean it up! There is an urgent need for the private and public sectors to collaborate and to launch a robust and cogent international public relations damage control campaign.

Premier McKeeva Bush’s insistence on remaining in office pending the outcome of the three police investigations must be addressed decisively. It is obvious that both political parties are impotent in addressing the issues. We should not expect our situation to improve absent leaders who do not have the courage to tell our country the truth and to do what needs to be done to fix our problems.

It is wrong to try to rush police investigations for reasons which are well known to law enforcement professionals. The only alternative, therefore, is for the business sector to call for the premier’s removal from office. The business sector is in a position to facilitate this and to prevent further reputational damage to our country. I call upon them to do so as a matter of urgency.

I sincerely hope that my recommended solutions will be objectively considered and that anyone who may feel personally offended by anything I’ve said will understand that this is bigger than any one of us. This is first and foremost about Cayman.

Charles Clifford is a former minister of tourism, environment, investment & commerce.

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Other options to tax

There is no need for any form of direct taxation, or any VAT or any other such measure either now or in the foreseeable future. What we as voters require, and what the UK also requires, is sustainable government spending. The most sustainable government financial system is one that limits expenditures. What is required is for government to eliminate waste, corruption and patronage. That may be hard for any politician whose core political constituency is based on these elements. 

Mr Miller made some very good suggestions Friday evening regarding both additional revenue sources and areas for possible expenditure cuts. He is to be commended. Perhaps some of our other highly paid politicians might now make equally clear suggestions for getting our finances out of the current mess, rather than just waiting their turn to board the gravy train.

Here are some areas of expenditure that I suggest can be cut. These are derived from the Government’s own June 2012 interim budget. I have merely annualized the expenses they published. See here

The government is currently subsidizing Cayman Airways to the amount of almost $2,000,000 per month. (See budget items CAL 1, CAL 2, and EI 1.) Over the years some $300,000,000 has gone this way, a large part of the total debt of the Cayman Islands. As part of this subsidy the government has been subsidizing essentially free travel for a vast number of Cayman Airways staff and their families and former staff and their families and dozens, if not hundreds, of current and former political appointees and their families, over many years. That needs to end. The entire subsidy to Cayman Airways needs to end. As an older Caymanian I understand the emotional attachment to Cayman Airways, but cutting the subsidy to Cayman Airways would eliminate half of the government’s projected deficit. It has to happen.

The government is also subsidizing the Turtle Farm to the extent of approximately $1,000,000 per month. This is what is shown by budget item EI49. That subsidy has been going on for years at a total cost of many tens of millions. I understand the emotional appeal of the Turtle Farm for Caymanians, but eliminating that annual subsidy would eliminate almost one quarter of the government’s projected deficit. It has to happen.

The premier proposes to keep the various “nation building” and other questionable funds that he controls to the tune of some $5,000,000 per year. (See budget item TP 52.) If that was eliminated another 10% of the government’s deficit would disappear.

The government also spends/wastes something like three quarters of a million dollars per year on what it calls “protocol services”. Perhaps that is where they put the bills for the personal servants, fencing, gas guzzling vehicles, personal Christmas lights, home electricity bills, etc., that are claimed (without any Constitutional basis) as “perks of the job”. See Budget Item CBO 9.

Credit card bills for luxury travel as well as “consultants” pay are buried in vague one line budget items. Double dipping by politicians, which costs the country an estimated a half million per year, is buried. The ministries controlled by the premier have a budget item (OE86) of something like $45,000 per month spent on “Compensation”, presumably to an entity outside government, with no indication of any benefit that the country receives for such an expense.

It is too easy for our politicians to say, “We really enjoy spending more and more of your money without any accountability and we don’t care how much it is going to cost you for us to get that money.” Perhaps that statement is too harsh. Perhaps it is more correct to say that the government has not even a glimmer of an understanding of what it will cost to implement new revenue measures of the type they have presented. 

Introducing any new forms of taxation, whether in the form of an income tax such as the proposed payroll tax or in the form of a VAT, will require government to greatly expand the civil service rather than shrink it. The proposed new taxes will also require government to put in place very expensive systems for collection and enforcement. Either of these tax systems will cost many millions for government and the private sector to implement. That will negate most if not all of any additional revenue and it will lead government to raise the rates of such taxes time and time again.

Sustainable government finances require prudent spending above all else. All the revenue in the world is not sufficient for a wasteful government. Forcing expats (and in a few months Caymanians as well) to subsidize government waste is not the answer. Every person and every organisation in the Cayman Islands should insist that every possible expenditure is cut to the bare minimum BEFORE we even think of raising taxes. If at the end of the day more money is required for government, then existing collection systems should be utilised to minimise the cost of obtaining revenue.

I would encourage everyone and every organisation to make yourself very clearly heard on this issue. If you do not, you will have only yourself to blame as you watch our country implode.

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Time to stop name calling

As many people know, both my wife and I keep up with the news from Cayman. It was with considerable dismay that I read the story where Mr Bush called the current Auditor General a “hitman”. People with a long memory will remember him accusing me of the same thing.

As far as I can tell, Mr Swarbrick is doing a good job in a difficult position. He understands his job and is doing it to the best of his ability. Without a strong Auditor General, I fear that there would be no real accountability within government. For the premier to attack this Office and the current Auditor General is just politicking at its most base level. I hope that all Caymanians will join me in supporting the Auditor General’s Office and the current AG as he continues to fight for value for money and accountability.

I remember well when I was similarly attacked by Mr Bush with similar comments. At the time, I felt I couldn’t respond and I am sure that the present AG feels the same way. But as a private citizen now, I can say some things that need to be said.

Mr Swarbrick and his Office are not hitmen. Yes, they say things that are difficult on the government of the day but it is not personal. I am sure that people will remember that the Office was often critical of government when the present opposition was in power. In fact, they didn’t always like our reports then either. The simple truth is the Office of the Auditor General is not political but it does report when it finds areas of poor value for money or poor accountability.

The solution for politicians is quite simple. Stop allowing money to be spent without due regard for value for money (such as the Cohen financing and Turtle Farm) and stop allowing money to be wasted (Gasboy et al). I am sure that the AG will be happy to report good behaviour as well as bad. However, if you continue with such behaviour, I hope for the sake of the Cayman Islands that the AG will continue to report it.

One final point. The Premier stated that he plans to sue the AG. I can’t imagine what basis he would feels a lawsuit is warranted. As far as this poor accountant can tell, doing his job well is NOT the basis for a lawsuit! Rest assured that if Mr Bush wants to continue down such a treacherous path, I would be happy to come downto testify (at my own expense) for the current AG and his Office.

As always, I wish the people of the Cayman Islands prosperity and well wishes.

Dan Duguay was the auditor general of the Cayman Islands from February 2004 to May 2010.

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