Cost of living cited
Opposition MLA Rolston Anglin has suggested Government give Caribbean Utilities Company a complete duty waiver on the fuel that it buys as one of the most effective ways of easing the high cost of living in the Cayman Islands.
‘There are very few items government can look at to give [cost of living] relief,’ Mr. Anglin said. ‘Giving CUC a duty cut is a mechanism that would ensure the cost savings are passed on to the consumer.’
The suggestion is somewhat surprising because Mr. Anglin, along with fellow West Bay MLA Cline Glidden Jr. and Leader of the Opposition McKeeva Bush, have vocally opposed CUC many times in the past because of its pricing.
CUC uses diesel fuel – and some gasoline – to run its generators. The company consumes on average between two million and two-and-a-half million imperial gallons of fuel each month, on which it pays 50 cents per gallon in import duty.
As per the terms of its licence agreement, CUC is allowed to pass on to its customers the cost of fuel over its base rate of 79.73 cents per gallon, which was the price of fuel at the time the agreement was signed in 1986.
This pass-through expense for CUC – called the fuel factor – has risen dramatically over the past three years as the global cost of oil has risen. As recently as September 2004 the fuel factor was under five cents per kilowatt hour billed. The fuel factor peaked last July at 11.4 cents per KWH, and will be 9.16 cents per KWH this month.
Every cent of increase in fuel factor cost the average household about $10 more a month, based on 1,000 KWH consumed. A complete waiver of import duty for CUC’s fuel would reduce the fuel factor by about three cents per KWH, meaning the average household would save $30 per month.
For businesses, the amount is even higher. CUC President and CEO Richard Hew said a large supermarket will use between 300,000 and 350,000 KWH per month, depending on the month. That means that last summer, large supermarkets were paying almost $40,000 in fuel factor alone.
When asked last month about the possibility of giving CUC a reduced duty on fuel, Leader of Government Business Kurt Tibbetts said it had been the government’s experience that when businesses have their costs lowered, they do not pass them on to the consumer. He also said that if CUC got a reduced duty rate, it would not necessarily benefit consumers.
Mr. Anglin disagreed with that statement, noting that import duty is an element of CUC’s fuel cost, which that company must report to government in order to calculate its fuel factor.
‘CUC is the one company government can monitor,’ he said.
Even if businesses did not pass on the savings to consumers, CUC would have to, Mr. Anglin pointed out.
Minister of Infrastructure Arden McLean noted last month that any duty reduction given to CUC would have to be made up elsewhere and that actions to address the cost of living needed to be ‘revenue neutral’ for government.
Again, Mr. Anglin disagreed with that statement.
‘What [Mr. McLean] said would be right if the government were just producing a balanced budget,’ he said. ‘But they are producing a surplus budget.
‘All they would have to do is, if they’re predicting a $35 million surplus, is to take $10 million out for [the CUC duty waiver] and decided the surplus would only be $25 million.
Mr. Anglin also pointed out that the reduction of import duty to CUC would impact government’s expenses as well.
‘Government also buys electricity, so the real cost of [the duty waiver to CUC] would have to be net against savings,’ he said.
With the number of government schools, office accommodations and other public buildings, that savings would be substantial.
Mr. Anglin said it all came down to the will of the Government.
‘Government needs to decide whether it really wants to bring down the cost of living,’ he said, noting that any action to do so would have to affect government’s bottom line.
‘But is Government willing to forego some of its surplus?’ he asked.
Mr. Anglin said the government needed to address the cost of living because it is affecting so many lives.
‘People are saying this is the worst off they’ve been,’ he said. ‘With the current economy, their purchasing power is significantly lower.’
Citing the ‘big five’ expenses that are currently affecting ‘the common man’, those of property insurance, interest rates, food, fuel and electricity, Mr. Anglin said electricity – through the CUC duty waiver – would be easiest for government to address.
‘I think the government can afford it,’ he said
Mr. Anglin said the duty waiver should be extended to CUC for an indefinite term.
‘Government needs to monitor the [cost of living] situation,’ he said, adding that he thinks it will be at least five years or longer before the cost of living issue eases here.
Mr. Anglin also said the Government needed to focus on becoming as small as possible to cut its costs, and to prioritise.’
‘[Government] has to decide what we can live with and what we can live without,’ he said. ‘As long as the government continues to grow in size, it will have to keep the taxes that hit the common man.’