Cayman’s economic growth lost

In his 2009/2010 Budget Address, delivered to the Legislative Assembly on 2 October, 2009, Kenneth Jefferson stated that, for the financial year 2008/2009 (1 July, 2008, to 30 June, 2009), the entire public sector loss was $81.1 million.

It seems to have been decided that, for the financial year 2009/2010, since the loss was likely to be repeated, new revenue measures were needed, which are expected to bring in an estimated $94.9 million during the current financial year ending 30 June, 2010. It is hard to see how this is possible for two reasons: (1) the public sector lives from the revenue generated by the private sector; and (2) the private sector and, along with it, Cayman’s economy, is contracting. The contraction in Cayman’s Gross Domestic Product for the financial year 2008/2009, according to the Financial Secretary, was 2.3 per cent. For the financial years 2009/2010 and 2010/11, the GDP contraction is expected to be 5.7 per cent and 3.3 per cent, respectively. Since the public sector is not contracting, or is contracting marginally, the contraction in economic activity must be coming largely from the private sector and, contrary to popular opinion, is self-induced, resulting from work permits lost or refused. In other words, we are shooting ourselves in the foot.

Cost of work permits lost/refused

Work permits lost or refused have four costs: (1) a direct cost to the private sector; (2) a direct cost to the public sector; (3) an indirect cost to the private sector; and (4) an indirect cost to the public sector.

(1) Direct cost to the private sector

In my opinion, a reasonable estimate of the direct cost to the private sector of one work permit lost or refused is approximately $3,250 per month ($2,000 – rent; $600 – food; $300 – CUC; $100 water; $150 – restaurants; $100 -gas) or $39,000 per year. These are conservative numbers because I have not taken into account purchases such as cars, furniture, appliances etc. Therefore, the loss of, or the failure to grant, 1,000 work permits costs the Cayman private sector at least $ 39,000,000 per year. The cost to the private sector is borne by the supermarkets, clothing stores, gas stations, utilities, restaurants, and shopping centre operators, who are hanging on by their fingernails trying to survive. Since the vast majority of these private sector businesses are owned by Caymanians, it is hard to fathom how anyone can believe that the contraction in economic activity is helping the Cayman Islands or Caymanians when exactly the opposite is the case. Jobs are being lost by Caymanians, as the numbers registered with the Department of Employment Relations readily attest.

(2) Direct cost to the public sector

The direct costs to the public sector from the loss of or refusal of work permits result from the money lost to the public sector for things as work permit fees, obtaining and renewing driver’s licences, paying for motor vehicle plates, import duties on goods brought into the Islands, etc.). I have not tried to quantify this; however, the loss is substantial.

(3) Indirect cost to the private sector

Assuming that the holder of a work permit saves some money each month (assume 500) and deposits it into one of Cayman’s retail banks, that bank would have $6,000 at the end of the year. Assuming that the bank would lend out 90 per cent of that amount, $5,400 would be available for loans to residents of Cayman. If you multiply the latter amount by 1,000, you arrive at loans of $5,400,000, which cannot be made; if you multiply by 2,000, $10,800,000 of loans cannot be made, and so on. These amounts, coursing through the economy, would result in much needed job creation.

(4) Indirect cost to the public sector

This has to go with the number of businesses, which faced with escalating fees and import duties and a declining number of customers, decide that it no longer makes sense to stay in business, resulting in loss of fees for work permits, trade and business licences, import duties, etc. Of course, closing a business also has direct costs to the private sector as the business no longer pays for supplies, services, utilities, etc.

Conclusion

The government made a decision that, instead of decreasing the size of the public sector, the new revenue measures would focus on the private sector. However, since the private sector is shrinking, these measures are unlikely to produce the revenue forecast. In my opinion, the answer is to grow the private sector. Our Premier seems to recognise this; however, others do not. In my opinion, unless the private sector is allowed to grow and along with it the economy, more Caymanian jobs will be lost. Our current economic malaise, unfortunately, is self-induced; however, it can be fixed.

Paul Simon

0
0

NO COMMENTS