Government officials expected to produce a spending plan for the current Cayman Islands budget year this week following protracted discussions with the United Kingdom over whether the territory would be allowed to borrow more money.
Negotiations late last week appeared to be at a standstill, with the UK’s Foreign and Commonwealth Office demanding some form of direct taxation, most likely an income tax, be implemented by the local government.
The ruling United Democratic Party has floated several ideas regarding how such a proposal might be implemented, but by press time had made no firm decisions.
The situation took on increased urgency this week with the realisation that Cayman only has spending authority through 31 October. Because of the elections held in May, government did not propose and debate its budget as it normally would in April, May and June.
Rather, Cayman had to borrow money to bridge the gap through the first four months of the fiscal year, assuming that lawmakers would propose a spending plan sometime in September.
However, financial troubles have forced the Islands to seek additional borrowings of some CI$372 million, for which Cayman has received approval from a local bank. According to Cayman Islands law, however, the UK must sign off on that additional borrowing because it exceeds allowed debt.
Financial Secretary Kenneth Jefferson said Monday that government would present its budget in October for the remainder of the year, and noted that Legislative Assembly would have to approve that plan by October 31 for the country to keep operating.
If the budget plan is brought forward on Thursday as anticipated, lawmakers would likely start debating it next week and then proceed to the LA’s Finance Committee to review the plan in more detail. That process usually takes a couple of weeks at least.
That timeline would put budget approval very close to the 31 October funding deadline.
UDP members were also planning to hold a public meeting this evening in George Town Tuesday to discuss the status of talks with the UK. A similar meeting scheduled last week was cancelled on short notice.
In late August, Leader of Government Business McKeeva Bush vowed not to support proposals for direct taxation discussed in a letter from Foreign and Commonwealth Office Minister Chris Bryant.
Last week, Cayman Islands Governor Stuart Jack, the foreign office’s representative here, said that the UK was seeking to create economic stability in its overseas territories in the wake of the world financial crisis.
‘The reason (Mr.) Bryant is calling for a broadening of the government’s revenue base is to ensure that borrowing…can be paid back and that government revenue is better able to deal with future shocks and a changing world,’ Mr. Jack wrote on his governor’s blog.
Mr. Jack said that he realises there is some discussion in the Cayman Islands that the UK government is attempting to destroy the territory’s financial services industry.
‘I have myself…called this conspiracy theory rubbish, a strong word for a mildly spoken governor,’ he said. ‘For Cayman to remain both a prosperous and a pleasant place to live, it needs to adapt to changing circumstances. That goes for the way government operates and funds itself.’
Political pressure has been placed on the administration from both the private sector and opposition party lawmakers not to accept the UK’s direct taxation proposals.
‘The attempt by the United Kingdom government to exploit the current difficulties we are having in presenting a balanced budget is unfair and unreasonable,’ Opposition Leader Kurt Tibbetts wrote in a letter sent Friday to Mr. Bush. ‘The United Kingdom itself is currently operating a deficit of 750 billion pounds.’
‘We must not alter the fundamentals of the successful Cayman economy by introducing direct taxation.’
Several major government projects and initiatives have been hit by the faltering state of Cayman’s finances just within the last two weeks. The high school construction project on the John Gray campus was shut down Friday following a dispute with the contractor. (See Caymanian Compass, 28 September).
Plans to negotiate for additional electricity production capacity on Grand Cayman were also cancelled last week due to estimates from Caribbean Utilities Company that such additional capacity would not be needed due to slowed growth in electricity demand.