The report written by an
independent commission to assess the Cayman Islands fiscal challenges makes harsh
recommendations for the Cayman Islands public service.
One of the major conclusions of the
report, which was written by James C. Miller III and David Shaw and dubbed ‘The
Miller Report’, is that “personnel costs are crippling the Cayman Government’s
ability to restore its fiscal balance and by any reasonable standard are
excessive and unsustainable.”
In a section of the report
dedicated to government’s personnel costs, the report authors agree with a
statement made in the Legislative Assembly in 2005 by now-Cabinet Minister
Rolston Anglin, who said the cost of civil service was “strangling the
financial resources of the country”.
The report tracks how core
government operating expenses increased from $335 million during the 2004/05
financial year to $537 million in the 2008/09 financial year, while personnel
costs increased from $162 million to $252 million in the same time period.
Looking at personnel costs versus
economic growth, a graph in the report showed that while personnel costs rose
sharply between the budget years 2005/06 and 2008/09, the gross domestic
product rose less sharply through 2007/08 and then fell the next two years.
“This rate of expansion cannot
continue in the long term without causing irreversible damage to the private
sector and making Cayman’s economy uncompetitive,” the report stated. “It would
change Cayman’s reputation from a place to do business to a place to avoid.”
The report disputes the common
notion of why the Cayman Islands had to go to the financial markets to borrow
“Many people commented in Cayman
that the reason for the borrowing was because of the capital being spent on two
new schools and the new government office building,” the report stated. “In
fact, the cause of much of the borrowing is the need to pay the… excess personnel
costs. Without the recent increase in
personnel costs over and above growth in GDP, both new schools could most
likely have been fully funded from normal revenues.”
In the 2008/09 financial year,
government’s personnel costs amounted to 51.76 per cent of all revenues,
something the report calls “an extraordinarily high figure when compared to
The report notes that the
government workforce, when combining core government and employees in statutory
authorities and state-owned authorities is 6,037, or about 15.5 per cent of the
estimated labour force.
The report compares that percentage
with many other countries in the world.
“…The data show that despite not
having many of the responsibilities held by larger nations, such as assessing
and collecting direct taxes, extensive welfare systems and national defence,
the level of government employment is on a par with or exceeds that of many of
[the other countries].”
The report states that one
implication from the data is that “government might be carrying out more
functions than are necessary or a similar number of functions, but less efficiently.
“Some of the difference may be
accounted for by a lack of competitive contracting out when appropriate and/or
a lack of privatisation compared with other countries.”
The report compares government
salary scales with that of the British Virgin Islands and noted that the
average Cayman Islands salary in the top 10 grades was some 65 per cent more
than in that country.
Since the Cayman Islands has no
income tax, the report points out that the net-of-tax salaries of the top five
grades of Cayman Islands government workers are all higher than the net-of-tax
annual income of the UK prime minister.
In addition to higher pay scales,
the report found that pension and healthcare benefits given to Cayman Islands
public servants were generous when compared to other countries.
“We have researched widely and
cannot find a government with better benefit terms, especially as both the
pensions benefit and the healthcare benefit are effectively non-contributory,”
the report stated. “These benefits may be among the best and most expensive in
the world. We also consider that their
true costs are unaffordable, as they risk making government’s debt burden
The report concluded that Cayman’s
total government personnel cost is “on par with the most expensive, advanced
economies in the world, although those countries’ civil servants have both
wider and more responsibilities.”
The report concludes that the only
real source of savings that can make a significant contribution to improving
the Cayman Islands financial sustainability is personnel costs.
“It is absolutely necessary that
urgent action be taken to bring under control the costs of civil servants,
including those in statutory authorities and state-owned enterprise,” the
The commission recommended a number
of specific actions, including:
That there be an immediate cut
of eight to 10 per cent in the civil service wage bill, implemented on a scale
system with higher grades taking a higher cut;
That there be a reduction in
the number of civil servants back to the level of July 2003 – 3,097 – to be
achieved at a rate of five per cent each year;
That the retirement age for
civil service be raised to 65, except for police and prison officers, with a
five-year phase in period to ensure it doesn’t interfere with the reducing of
the numbers of civil servants.
The report also makes
recommendations for contributions toward civil servants’ pensions and healthcare
and it recommends reform for employees of statutory authorities and state-owned
enterprises in the same manner as for civil servants.