Fees jacked up in budget

Businesses, residents face burden

Budget

Speaker of the Legislative Assembly Mary Lawrence enters the House Chamber followed by Governor Stuart Jack, his wife Mariko Jack and others to start the Budget Meeting on Friday. Photo: Norma Connolly.

A spending plan described as a ‘bare bones budget’ calls for a significant number of fee increases as well as some brand new fees on Cayman Islands businesses and residents this year.

However, the budget for Cayman’s 2009/10 fiscal year does not include any direct taxation, such as property, income or payroll taxes.

Fee increases range from charges on money remittance transfers, to work permit fee hikes, to a slew of operating charges on the financial services sector. The government expects to earn an additional CI$95 million in the current budget year from the new fees, and some $126 million over the course of a full fiscal year.

The country’s budget year actually began on 1 July, but government had to use a temporary appropriation to get through the first four months of the fiscal year following the May elections.

“The government had to make the tough decision of imposing revenue measures during a difficult economic period,” Financial Secretary Ken Jefferson told the Legislative Assembly Friday morning during his budget presentation.

The combination of the new fees, plus some spending control measures in the civil service, is expected to bring the Islands back into compliance with legal principles of financial management, and will hopefully keep Cayman from going back to the United Kingdom to seek approval for further borrowing.

Earlier this week, the UK did agree to let Cayman borrow CI$279 million to help it get through the year as long as certain conditions were met. Mr. Jefferson said Friday the government intended to borrow $275 million in the current budget year, mainly to pay off previous loans and fund major public construction projects.

Leader of Government Business McKeeva Bush said he refused to agree to any direct taxation despite UK overtures to do so.

“These are especially serious times, times that call on all of us to act with resolve,” Mr. Bush told the assembly Friday.

The country’s proposed budget contains projections of CI$562.2 million for core government revenues – a large increase from the badly underestimated CI$528.2 million projected in the 2008/09 budget year.

However, Mr. Jefferson pointed out that no new fees were proposed in last year’s budget.

Meanwhile, core government expenditures total CI$557.4 million in the newly proposed budget. That amount is higher than what government spent in the 2008/09 budget year, according to estimates provided to the Caymanian Compass earlier by Mr. Jefferson.

Mr. Jefferson said government had identified various ways of curtailing expenditure including restrictions on hiring new staff, cutting back on overtime pay, reducing rental costs, eliminating non-essential travel and restricting personal use of government vehicles by civil servants.

Portfolio of the Civil Service Chief Officer Gloria McField-Nixon said last week that the government has lost 153 workers in the past year, mainly due to decisions to leave vacant positions open and non-renewal of expiring contracts. She said the size of the civil service had gone from 3,833 people in September 2008 to 3,680 last month.

‘This reduction in the civil service has produced savings based on annual salaries alone of approximately $4.4 million,’ Mrs. McField-Nixon wrote in an e-mail.

Civil servants rejected a proposed two-per-cent temporary cut in pay, and government leaders had earlier promised not to actively seek to eliminate government jobs.

“The government had to combat the tendency of increasing operating expenses of the civil service and to curtail operating costs…without seriously jeopardising the quality and quantity of services to the public,” Mr. Jefferson said.

Without severe cuts to public sector jobs and programmes, government was left with the $275 million in borrowing and a series of new fees to balance the budget proposal. The fees and charges proposed to increase or appear for the first time this year include:

Work permit fees – These will be increased across all categories, except for domestic helpers. Fees for key employee and permanent residency applications will also be hiked, with government expected to earn CI$22.5 million for a full calendar year.

Import duties – A two-per-cent increase on all imports except those imports that are currently duty free. This will raise CI$16.5 million per full year.

Fees on money transfers – A two per cent fee will be charged on all remittances leaving the Cayman Islands through money transfer entities. Additional revenues from this measure are expected to earn CI$4.6 million in a full year.

Business premises fee – This new fee, which was not specified, will be an annual amount payable by the tenants of commercial properties. It’s expected to raise CI$6.5 million in a full 12 month period.

Banks and trust licences – Class A retail banking licences will increase from CI$400,000 to CI$600,000 per year, non-retail licences will cost CI$130,000 to CI$136,500 per year. Bank/Trust Class B licence fees would go from CI$57,000 per year to CI$60,000. Additional revenues of CI$2.2 million per year are expected here.

Insurance licences – Class A (local) licences will go from CI$30,000 to CI$50,000 per year, while approved external company licences will move from CI$40,000 to CI$50,000 per year. Both types of Class B insurance licence fees will change from CI$7,500 to CI$8,500 per year. Some CI$1.2 million is hoped to be collected.

Cigarette duty – Duty per 1,000 cigarettes is currently CI$52.50 and will increase to CI$105 per thousand cigarettes. This is expected to raise CI$700,000 per full year.

Package tax – The current tax of CI$1 per 100 pound package is proposed to go to CI$4 per 100 pounds. This is anticipated to earn CI$500,000 per year.

Annual company fees – Fees for resident, non-resident, exempt and foreign companies are proposed to increase between CI$150 and CI$500 a year. This is expected to increase government coffers by CI$17 million in a full year.

General registry fees – Various increases in certificates, certifications, express filings, and new company registrations will raise an estimated CI$7.2 million during a calendar year.

Mutual funds – Mutual funds annual licence fees will increase by CI$500 a year. This is expected to earn government an extra $4.4 million per year.

Security investment business fee – Fees for these businesses will go up by CI$2,500 per year, raising additional revenues of CI$7.9 million for a full year.

Environmental impact fee for used vehicles – A new fee for all used cars imported to Cayman that have a maximum cost, insurance and freight value of CI$12,000 will be charged a flat fee of CI$1,000 in addition to other import duties. This is expected to earn another CI$1.8 million per year.

Several other proposed fee increases include warehouse charges, tax and trust undertaking fees, patents and trademark registration charges, Cayman Islands Monetary Authority transaction fees and other miscellaneous fees.

Mr. Jefferson said if projections are met they will bring Cayman back within the principles of responsible financial management as set out in law.

Based on current budget projections, Mr. Jefferson said Cayman would end the year on 30 June, 2010 with CI$137.9 million in cash reserves, roughly 98 days of government operating expenses. Debt levels were also expected to stay within acceptable limits, albeit on the high end.

Lawmakers will resume meeting today to debate the spending plan, and then adjourn to Finance Committee to review budget specifics. The entire process must be completed by 31 October, which is when government’s temporary appropriation is due to run out.

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