Governor: Make a choice

Direct taxes not absolutely necessary if public sector cuts occur

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Negotiations
over Cayman’s fiscal difficulties were expected to continue into this week as
the territory sought the United Kingdom’s approval to borrow more money in its
upcoming budget.

Premier
McKeeva Bush recently submitted a three-year budget plan to the UK Foreign and
Commonwealth Office and has said he is confident Cayman will be allowed to borrow
what is necessary to sustain its operations in the year ahead. A response to
that plan was expected sometime last Friday, according to Governor Duncan
Taylor

However, Mr.
Taylor said the initial UK response was likely to be followed up with some discussion,
so it might not be the Mother Country’s final word on the matter.

The amount
Cayman is seeking to borrow in the upcoming 2010/11 fiscal year hasn’t been
revealed.

The foreign
office – particularly Under Secretary of State Chris Bryant – has not decided
whether it will allow Cayman to borrow more money in the coming fiscal year.

Cayman is in
violation of at least three principles of responsible financial management as
set out in local law. The principles govern how much debt Cayman can assume and
require it to maintain a balanced budget. The overseas territory ended the last
budget year with an $81 million operational deficit and is projected to end
this fiscal year on 30 June with an operating gap as well.

Overseas
Territories Director Colin Roberts indicated in a letter last month that the
foreign office would have to be “satisfied that (Cayman) has a credible and
deliverable plan to balance public finances” before allowing further borrowing.

The UK has not
backed away from its recommendations that the Cayman Islands adopt some form of
direct taxation – property tax or income tax – to help the territory produce
more reliable revenue streams in tough times.

Despite the
United Kingdom’s stance, Cayman Islands Governor Duncan Taylor said last week
that he doesn’t believe such measures are absolutely necessary to balance Cayman’s
struggling budget.

However, Mr.
Taylor said Cayman needed to make a choice.

Leaving out
more predictable streams of government revenue, such as direct taxes on
property and income, would likely lead to deeper public sector cuts in the near
future, he said.

“There is
already more tax than one might imagine in the Cayman Islands,” Mr. Taylor
said. “It’s not exactly a high tax environment by any means, but the idea that
it’s…a zero tax environment isn’t right either. Particularly work permits,
where you’re employing expatriates…you could look at that as a tax.

“Not
introducing any alternative form of revenue raising does mean that the
government is going to have to make deeper and faster cuts in expenditure.”

A recently
completed consultant’s report recommended slashing the overall Cayman Islands
government personnel budget by some $80 million, stating that it appeared the
elected government had lost some measure of control over the country’s finances.

Cayman Islands
civil servants have panned that report.

In a statement
released Thursday, the Civil Service Association’s Management Council opined
that the independent commission led by former US bureaucrat James Miller III,
UK conservative politician David Shaw and Cayman Islands Financial Secretary
Kenneth Jefferson didn’t actually accomplish what it was supposed to.

“It is clear
that their pre-existing political and economic views coloured the report and
its recommendations,” the management council statement read.

The Civil
Service Association noted that the report provided little in the way of
recommendations for new revenue measures – taxes and fees – that might be used
by the Cayman Islands Government to get itself out of the current financial
mess.

“These
practical suggestions were what was called for when the commission was asked to
‘make recommendations…for improving the current revenue base…for the Cayman
Islands.’”

The management
council argued that the public service was being made a scapegoat for national
budget problems.

Governor
Taylor said it was likely that further cuts to Cayman’s budget would be needed
in the coming year, and that those could include salary reductions and health
care premium payments for civil servants.

He said the
option of making civil servants redundant was not one he supported and that it
should only be used as a last resort.

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Mr. Taylor
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