Premier Bush’s budget proposes another deficit
Cayman will raise import duties on
petrol, increase its total public sector debt to more than $623 million and
plans to end its next budget year with another operating deficit.
Premier McKeeva Bush’s $510.3
million spending plan is slightly more modest than the budget his government
rolled out last October and calls for further cuts in the government service.
However, Mr. Bush said there were
signs that the world economic spiral that has hit Cayman hard since the last
quarter of 2008 was beginning to ease up. He said the local economy should reap
the benefits if it was in a position to receive them.
“It is a new dawn,” Mr. Bush told
members of the Legislative Assembly during Tuesday’s budget and policy address.
“But we must not forget that the light reaches us with a delay.”
The proposed increase in import
duty for gasoline and diesel fuel is expected to take effect in July – next
month – and would increase duties for gas and diesel by 25 cents per gallon.
The duty increase was proposed to take effect only in Grand Cayman and Little
Cayman. Mr. Bush said Cayman Brac would be spared the increase.
The new revenue measure, the only
major one proposed for the 2010/11 budget, was expected to raise $10.3 million
within the next year.
A number of cuts in the Civil
Service will take effect on 1 July, including a 3.2 per cent salary decrease.
Mr. Bush said all legislators would take a corresponding 3.2 per cent cut in
pay, except for himself and Opposition Leader Kurt Tibbetts who would receive a
10 per cent salary reduction.
Premier Bush did have some good
news regarding the current budget year, which will end in two weeks.
Government’s operating deficit was anticipated to be at $45 million by 30 June,
less than the $57 million gap forecast in February. Meanwhile, government
expected to end the year with $77 million in the bank.
Despite the salary reductions and
new import tariffs to be implemented next year, Mr. Bush said government still
expected to end the next budget on 30 June, 2011 with a $31.8 million deficit.
The premier said government had
promised the United Kingdom’s Foreign and Commonwealth Office that it would
work over the next three years to gradually reduce spending deficits and to
lower its public project debts.
In return, the UK has allowed
Cayman to borrow a further $155 million to support it operations over the next
year. However, foreign minister Henry Bellingham made it clear in a letter to
Mr. Bush that this was all the UK intended to let Cayman borrow through 30
The UK has required that Cayman
create a ‘sinking fund’ – also known as a rainy day fund – with the proceeds
from sales or divestment of government assets. Those funds could be used to pay
off debt or to increase Cayman’s available cash.
Britain also required that its
overseas territory complete audited accounts for all of its government entities
by the end of the next fiscal year – 30 June, 2011.
Expenditures in the upcoming budget
included $507.7 million for operations – which Mr. Bush pointed out was more
than $68 million less than the civil service first proposed in its budget
submissions back in March.
Another $32.8 million would be paid
for debt service, and some $1.5 million was set aside for anticipated losses
from statutory authorities and government companies.
Cayman’s government still plans
significant spending on capital projects during the next fiscal year, including
nearly $109 million for new high schools and the completion of the government
office accommodation project.
The borrowing needed to get Cayman
through the year is expected to bring its public debt figure to $623.7 million
by 30 June, 2011.
“This is not where I want to be,”
Mr. Bush said. “We will take steps to correct this dangerous situation.”
Mr. Bush also made public his
government’s three-year plan that was submitted to the UK for review.
In general the plan calls for a
major public sector reform in Cayman, limits new government borrowing, calls
for the broadening of government revenue bases and calls for additional
public-private sector financing initiatives.
“It will allow the private sector
to drive the economic recovery,” Mr. Bush said.
The premier also noted that there
was “a world of difference” in UK-Cayman relations over the last four weeks –
since the former Labour Party government lost power and was replaced by a
coalition of UK conservatives and Liberal Democrats.
“We have entered a period of a more
positive partnership with the UK,” Mr. Bush said, adding that the new
government “wanted to treat the overseas territories and indeed the wider
Caribbean, more favourably.”
Mr. Bush said he regretted the need
to cut civil servants salaries in the upcoming budget and vowed to revisit the
cuts if the local economy were to improve.
In order to do that, he urged the
government service to become more business friendly and to work hard to turn
around Cayman’s economy.
“The only way we change the
situation is if we do it ourselves,” Mr. Bush said.
One issue that had affected the
local economy in the past year was the departure of thousands of work
permit-holders from the country as layoffs and outsourcing at companies
According to figures presented by
Mr. Bush, Cayman’s population had shrunk from more than 57,000 people in 2008
to 52,830 in 2009.
At the same time, local
unemployment increased to six per cent.
The two factors led to a decline in
demand for local goods and services. This has hurt Cayman’s economy, Mr. Bush
said. “They help make money for us,” Premier Bush said, referring to the work
permit holders. “When they gone, we get less.”