A private member’s motion calling for the government to reconsider and reduce its levels of capital spending and borrowing was defeated in the Legislative Assembly Wednesday.
Leader of the Opposition McKeeva Bush brought the motion because of his concerns that the global and US economic slowdown will reduce Cayman Islands’ government revenues.
‘It does not take an economist to understand that the Cayman Islands are very susceptible to global economic conditions, especially that of the US, and the downgrade of the global economy since the preparation of the budget will result in a reduction in the expected revenue for the country and consequently would change the debt service ratios.’
Mr. Bush said central government would incur public debt exceeding $400 by the end of 2009 and that government authorities were also incurring massive debt.
‘Never in our history have the people of this country had so much debt on the shoulders of every man, woman and child.’
Although he recognized the need for infrastructural improvements, Mr. Bush said the People’s Progressive Movement Government should not be trying to do so much at once.
‘I do not dispute, and have never disputed, the need for infrastructural development, including the need for schools, the cruise berthing facility, the new government [office accommodation] building, or road works,’ he said. ‘However, these must be done in our normal time-tested way of cutting your garment according to your cloth.
‘The PPM is proposing to spend too much between now and the next election. Their willingness to get elected at whatever cost will leave future generations paying for this error.’
Financial Secretary Ken Jefferson acknowledged the US economic downturn when he spoke about the motion.
‘It is true the diminished outlook for the US for the remainder of this year is significant to the Cayman Islands,’ he said. ‘There is debate about whether the US economy will go into recession. The government is vigilantly monitoring the situation in the US’
Mr. Jefferson still said the government borrowing planned over the next two financial years was acceptable and affordable.
However, the Strategic Policy Statement issued last November with regard to the upcoming 2008/09 financial year does make some significant and now questionable assumptions underlying its economic forecasts – partially upon which the affordability of the capital spending and borrowing plan is based.
In particular, the SPS assumes that while economic growth in the US will soften it makes no mention of a more severe economic downturn or recession in that country. It also forecasts global economic growth as stable, which many economists do not feel will be the case, particularly if the US enters a recession.
The SPS also forecasts visitor air arrivals to grow between 3 per cent and 3.1 per cent between 2008 and 2011. Should the US enter a recession – and perhaps even if it just experiences a significant economic downturn – Cayman tourism is likely to feel the effects.
Leader of Government Business Kurt Tibbetts flatly rejected Mr. Bush’s motion.
‘Not even on the kindest of mornings could the government accept this motion,’ he said.
Mr. Tibbetts said the capital spending was all necessary.
‘The truth of the matter is that the majority of capital projects that we have had to embark on…is not because of political expedience, but because of a lack of planning beforehand.’
Mr. Tibbetts also said the spending was prudent. He explained that the new $85.5 million government office accommodation project was going to cost just a little more per square foot to build than it would have cost to refurbish the Glass House.
In addition, he said it was estimated that government lease costs would reach $10 million per year by 2013 if the GOAP did not go ahead.
‘How could anyone say that is not fiscal responsibility to build that building?’ he asked. ‘What we need to appreciate is that if we don’t build that building now… [over the years] it would cost us several times over what we’re paying for it in lease costs.’
As for the four new schools – which Mr. Bush claimed would cost an estimated $250 million – Mr. Tibbetts said the government had a responsibility to the children of this country.
‘We are totally out of space at both the primary and secondary level.’
Mr. Tibbetts said the PPM would be criticised by the opposition no matter how they approached the problem.
‘The same people who bring this motion today are the ones who will come to this house and say the government is doing nothing.’
Mr. Tibbetts said the government would not be distracted from doing what was needed in terms of capital projects.
‘We will steer the course,’ he said. ‘We will continue to spend in a frugal manner the public’s money… and we will get results.’
In his subsequent response to the debate, Mr. Bush reiterated the fact that he knew infrastructure improvements had to be done.
‘But we have to be careful about it,’ he said. ‘We have to live within our means.’
Mr. Bush said that while Cayman needed new schools, it did not need schools that would cost $50 million to $60 million each.
‘We’re going to spend $60 million for one school. Come on members of the Legislative Assembly!’
Mr. Bush said that just because there was a need for something and that people wanted something, it did not mean the government should do it.
‘We can’t do something at a time when we can’t afford it, and we can’t do it with extravagance,’ he said. ‘There’s a tremendous amount of extravagance in these proposed projects.’
Looking at the percentage of public debt to Gross Domestic Product, Mr. Bush said it would exceed 30 per cent.
‘This represents a relatively large percentage.’
The SPS assumed repayments on public debt to be $23 million in 2008/09; $28.43 million in 2009/10; and $29.91 million in 2010/11, Mr. Bush said.
‘Any reduction of debt payment will ultimately impact the debt ratio for any given year,’ he said.
Mr. Bush said the PPM’s legacy would be leaving record public debt that would amount to $10,909 per man, woman and child living in the Cayman Islands, and he reiterated his call for the government to reconsider its expenditure and borrowing.
Compass reporter Brent Fuller contributed to this story.