A projected $29 million budget deficit did not stop Cayman Islands lawmakers Friday from passing economic stimulus measures that could lead to a further reduction in government revenues.
The forecast operating deficit was revealed in a supplemental appropriation presented to the Legislative Assembly Friday morning.
That means government budget planners expect core government revenues will not meet expenses when the fiscal year draws to a close on 30 June.
There was no discussion of how government intends to make up the gap, but it is essentially left with three options: increasing revenues through raising taxes; cutting back on expenses; or borrowing more.
Leader of Government Business Kurt Tibbetts sought to calm fears about Cayman’s financial position Friday, noting that Moody’s Investment service has recently given the islands ‘the 2nd highest credit rating in this hemisphere’ at AAA.
He said that government had moved to cut expenses by some $15 million earlier this year, but those cuts were largely offset by new increases in spending.
‘Should the government be condemned…because indigents have to go overseas for medical care; for supporting scholarships for young Caymanians; for paying $6 million to subsidise CUC payments; or for spending $9 million to help repair Cayman Brac (after Hurricane Paloma)?’ Mr. Tibbetts asked the Legislative Assembly Friday.
He also said that some $6.1 million has been spent on matters related to an investigation of alleged police corruption here, and that another $1.44 million was set aside for a tribunal against a suspended Grand Court judge.
‘We were obviously overruled by a higher authority,’ Mr. Tibbetts said, referring to the United Kingdom. ‘We simply have to bite the bullet and move on.’
Opposition Leader McKeeva Bush, who has often criticised government spending over the past 18 months, said Mr. Tibbetts was merely making excuses for a budget that overestimated revenues in the first place.
‘It was more a fidget than a budget,’ Mr. Bush said Friday. ‘Over projections were made in order to make the budget look good.’
Even now, Mr. Bush said the ruling government did not fully recognise the extent of the fiscal crisis it faces.
‘The government is still partying and now it has to cut back on vital areas,’ Mr. Bush said.
According to the report given to the Legislative Assembly’s finance committee, revenue forecasts for the current budget year dropped some $21 million since they were last calculated.
“This reduction is primarily due to material downward revisions in the areas of levies on international trade and transactions…and domestic levies on goods and services,” the report stated.
Expected revenue from investments was also revised downward by almost 50 per cent because of falling interest rates.
Financial Secretary Kenneth Jefferson defended his projections on Friday.
‘The budget which the government prepared in April 2008, I believe, was a realistic budget,’ he said. ‘Had the government brought a budget here today that was in surplus…no one would have believed the figures.’
Just before news of the operating deficit was released Friday, Cayman Islands lawmakers passed two proposals that provide a short-term reduction in certain customs tariffs and stamp duty on property purchases.
The temporarily reduction in stamp duties means levies on certain properties along Seven Mile Beach and in George Town will drop from 7.5 per cent to five per cent. That change applies to Caymanians and non-Caymanians alike.
The plan also reduces stamp duty paid on property purchases by non-Caymanians in all other areas of the island from six per cent to five per cent. For Caymanians looking to buy property in other parts of the island, the rate will be cut from four per cent to three per cent.
First-time Caymanian homebuyers purchasing property between $200,000 and $300,000 in value will also see the stamp duty they pay reduced from two per cent to one per cent.
The temporary stamp duty reduction will kick in between 1 April, 2009 and 1 October, 2009 and will apply to all conveyances or transfers of immovable property.
A rate reduction on customs tariffs of five per cent will be made for certain imported construction-related materials such as cement, lumber, plywood, iron, steel and other items.
That tariff reduction, if passed, will be in effect from 1 April, 2009 until 1 January, 2010.
“These are temporary measures,” Mr. Jefferson said. “The sole purpose is to stimulate the local economy.”
That statement outraged members of the opposition party, who said the ruling government was playing politics with the construction materials duty reduction rather than implementing rate reductions that would help actual people.
“I can’t take this bill back to West Bay,” said West Bay MLA Rolston Anglin. “I can’t say to people who are desperate, ‘go and eat cement’.”
Opposition Leader McKeeva Bush said he had asked the Government in a February 2008 private members motion to look at its spending with a critical eye, particularly at reducing its borrowing for construction projects. The government flatly rejected that motion.
Mr. Bush said the move to cut import taxes now is a result of government’s failure to heed financial warnings a year ago.
“We will support this,” Mr. Bush said. “But…it’s a little too late.”