The United Kingdom gave approval Monday for the Cayman Islands to borrow CI$50 million immediately and another CI$229 million condition.
Although the conditions do not include forcing the Cayman Islands to impose direct taxation at this point, the real possibility remains that it could happen as soon as next July.
During a public meeting at Mary Miller Hall Tuesday night, Leader of Government Business McKeeva Bush read a letter from the UK minister responsible for the overseas territories, Chris Bryant, outlining the conditions of the largest part of the loan approval. One of the conditions concerned taxation.
Mr. Bryant said the loan was being made on the condition that ‘you commit now to commission an independent, professional assessment of the options for, and potential impact of, new revenue sources including direct taxation… which would bring about a significant diversification of your revenue base.
The parliamentary under secretary of state said he wanted to see the draft terms of reference for the assessment, which he said should deliver the recommendations by the end of December.
‘You should also commit now to implementing the reasonable recommendations of this report not later than in the budget for [financial year] 2010/11.’
The 2010/11 financial year begins July 1, 2010.
Mr. Bush said that during discussions with the Foreign and Commonwealth Office, the Cayman government had maintained its position that it would not be pressured to do anything ‘which would destroy the success that we have worked hard to achieve and which would cause a negative impact on the standard of living of Caymanians’.
‘We must protect our way of life,’ he said. ‘That is why we stood up against rushing to impose any form of direct taxation.’
Mr. Bush conceded, however, that to get to the point where the government could present a budget ‘we have had to cooperate with the UK Foreign and Commonwealth Office’. He also said the Cayman Islands Government would agree to the conditions set out by Mr. Bryant in his letter.
Usage of loans
In the end, the UK only approved CI$279 million of the CI$376 million the Cayman Islands was seeking to borrow from local financing institutions.
Of the $50 million of loans Mr. Bryant agreed to unconditionally, $15 million is to pay off an overdraft facility and $35 million was to replenish cash reserves for recurrent expenditures and principal loan repayments.
The conditional $229 million of borrowing will repay an existing $154 million loan facility due 31 December 2009 and to provide $75 million to funding existing capital projects.
The borrowing facility for existing capital projects was half of what the government requested. Mr. Bush did not say how the half-funding would effect the three major ongoing government infrastructure projects, namely the government office accommodation project, the John Gray High School and the Clifton Hunter High School.
In addition, the UK did not approve CI$21.5 million of borrowing to fund new capital projects.
Regardless, Mr. Bush said there would be funding in the budget for several capital projects, including a new Sunrise Centre; repairing damages from Hurricane Paloma; and road works on Grand Cayman and the Sister Islands
Other revenue measures
Mr. Bryant also insisted the Cayman Islands include additional revenue of at least CI$115 million in the 2009/10 budget.
Mr. Bush said the government, consulting with the private sector, had come up with a plan to raise more than $100 million of additional revenue.
‘I can honestly say that our government has consulted for and wide on the proposed measures and we have made every effort to propose revenue measures that are sustainable; non-detrimental to our economy; and supported by leading members of the private sector – particularly those in the financial services sector,’ he said.
‘Specific details of the revenue measures will emerge from the budget-consideration process.’
The budget session in Legislative Assembly is expected to begin Friday.
Mr. Bush did say some of the new revenue measures will include: a two-per cent increase on import duty; the elimination of duty-free exemptions on some specific items; an increased duty on cigarettes; an increased duty on non-essential watercraft; an increased duty on some other luxury goods; an increase in passport fees; an increase of banking transaction fees; the introduction of a small remittance fee for overseas financial transfers; and increased work permit fees.
Mr. Bryant also insisted on ‘real cuts in public expenditure in the financial year 2009/10 compared to financial year 2008/09, and for the government to commit ‘to further ambitious cuts’ in financial year 2010/11.
In addition, Mr. Bryant insisted the Cayman government commit to a review of the public service, focusing first on the major spending departments, with a view to reporting the findings no later than January 2010.
Mr. Bush said the government would make the further cuts in public expenditure for the 2010/11 budget.
‘This has not been easy, but we recognise that there are sacrifices that must be made to get through these times,’ he said. ‘We in government must do the same and we must do so now, not tomorrow.’
Government cost cutting measures outlined by Mr. Bush included restrictions on the number of new staff to be hired; reducing furniture and equipment purchases; restricting overtime; identifying ways to reduce accommodation rent cost; eliminating all but essential official travel; and restricting the usage of government vehicles for private purposes.
Mr. Bush also said the usage of government cellular telephones would be restricted to cabinet ministers, chief officers and a select few others. He noted that government spends more than $3 million annually for telephone usage, half of which is for cell phones.