Year in review: No quick budget fix

The year 2010 brought the stark reality that there would be no quick fix for various debt-laden countries struggling to meet monthly – even weekly – financial obligations.

The Cayman Islands were no different.

The year started off with Cayman at loggerheads with the United Kingdom over its ability to borrow more money in the upcoming budget year; due to start 1 July. The UK wanted to see evidence of Cayman’s long-term budget plans which agreed to reduce spending as well as increase government revenue streams.

The spectre of direct taxation – either property, sales or incomes taxes – loomed large. Premier McKeeva Bush continued to resist calls from the Foreign and Commonwealth Office to implement such measures.

One determining factor might have been an unprecedented letter from prominent local business owners urging the government to find other sources of cash.

More than 100 private sector associations, businesses and individuals banded together to send an open letter to Governor Duncan Taylor, Premier McKeeva Bush, elected members of Cabinet and other members of the Legislative Assembly.

“The current crisis has united a previously fractured private sector behind the common purpose of repairing our economy and taking the opportunity to make Cayman again a desirable place to work, live and invest,” the letter read.

For his part, Governor Taylor said he didn’t necessarily believe Cayman had to implement direct taxes. But the less Cayman raised government earnings, the more it would have to cut civil service jobs and expenses, 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.”

In the new budget year, government introduced a controversial 25 cent increase on petrol imports, but did not seek to implement income or property taxes. The civil service also had its salaries cut by 3.2 per cent across-the-board starting on 1 July.

Government workers were not best pleased by the salary cuts, but publicly accepted them in the end. The Civil Service Association later sought to investigate the situation when the Caymanian Compass reported that several dozen civil servants in various departments had received pay increases either just before or just after the salary reduction took effect.

Further reductions to the government service were being contemplated toward the end of 2010. Deputy Governor Donovan Ebanks released the results of a first review of four departments in the government service – which recommended dropping a collective $17 million from their respective budgets.

Mr. Ebanks said further cuts in several other government departments would be considered in the coming months.

Chief Officer of the Portfolio of Internal and External Affairs Franz Manderson warned that government’s budget-cutting exercise would not end on 1 July, when the new fiscal year begins.

“Further reductions in operating expenses will be expected over the next three years,” Mr. Manderson said. “It follows that sustainable means of reducing costs must continuously be pursued.”

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