Government ‘is addressing Miller/Shaw report’

The Cayman Islands government says it has ‘actively addressed’ six of 12 recommendations in the Miller/Shaw report. 

Premier McKeeva Bush told the Legislative Assembly Wednesday there were several areas in which progress had been made, in response to a question tabled by Leader of the Opposition Alden McLaughlin. 

The first recommendation was not to impose direct taxation, the Premier said. “I have said before and I will say again, my government agrees with this recommendation and has no intention of imposing any sort of direct taxation,” Mr. Bush said. “Direct taxation will be detrimental to the economy of these Islands.” The second recommendation was to orchestrate substantial privatisation and other asset sales. Mr. Bush said possible divestment of assets was being addressed and bids had been received for the acquisition of the sewerage arm of the Water Authority’s operations. 

“It is expected that a decision will be made on this aspect during the remainder of this calendar year,” said Mr. Bush, who added that assessment of further privatisation continued. 

Operating expenses 

Thirdly, the report recommended making significant reductions in operating expenses. Mr. Bush said personnel costs represented about 50 per cent of operating expenses in any one year. This comprised salaries, wages, pension contributions and health insurance costs. 

“In the year ended 30 June, 2010, personnel costs … were approximately CI$228 million. In the year ended 30 June, 2011, personnel costs were reduced to $215 million approximately,” Mr. Bush said. He said the government had agreed on a three-year plan with the Foreign and Commonwealth Office for the 2010/11, 2011/12 and 2012/13 financial years, to which it is obliged to comply as close as humanly possible. Costs are constantly under review and reduced wherever possible, Mr. Bush said. 

The fourth addressed recommendation was complete audits of all government agencies, statutory authorities and state owned enterprises. Mr. Bush said it was an ‘historic first’ that ministries, portfolios, offices in government, statutory authorities and government companies had prepared their 2010/11 financial statements in compliance with the Public Management and Finance Law. 

He called the August 2011 amendment to that law as the start of an ongoing process and pointed out that from 26 June, 2009, to 7 September, 2011, the government had tabled 120 annual reports and financial statements in the Legislative Assembly. 

Improving the accuracy, reliability and usefulness of data produced by the Economics and Statistics Office was a fifth recommendation of the report. Mr. Bush told the House the office aimed to improve data quality by increasing the frequency and scope of data collection used for forecasting. 

“Staff is provided with necessary training – mainly through regional organisations such as [the Caribbean Regional Technical Assistance Centre] and the [Caribbean Community and Common Market],” the premier said. 

Finally, attracting private capital to solve various infrastructure challenges and to develop new enterprises was being addressed through public/private sector proposals such as the Dr. Shetty medical facility, the ForCayman alliance and Cayman Enterprise City in the Special Economic Zone. 

Addressing recommendations 

Mr. Bush said the government would strive to address the recommendations that remained in the present and upcoming financial year.  

These include developing and maintaining a separate contingency fund; reforming the budget process to improve transparency and increase accountability; reviewing government activities to identify and implement efficiency-enhancing applications of information technology, related reforms and contracting out; studying ways of raising the same revenue, but minimising the adverse effects on economic activity of various levies on the financial services industry, the tourism industry and the goods and services industry; increasing the number of work permits, reducing work permit fees and making the guest worker programme more flexible; eliminating the tax on funds exported on the islands to lessen the inequity and to quell rumours that the Cayman Islands may well tax other type of fund transfers. 

The decision to increase work permit fees had been taken because the UK had at the time proposed income and property tax plus a cut of 10 per cent in salaries and 10 per cent of the civil service plus a payroll tax. Mr. Bush said a private sector body had been put together to look at ‘the worst financial crisis the country had faced’. That body had said none of those taxes were recommended and that work permit fees were one way to increase revenue. When the economy recovered these would be rolled back, he said. 

Contingent liabilities 

The current status of contingent liabilities identified in the Miller/Shaw report were also questioned by Mr. McLaughlin. 

Mr. Bush said the government recognised there was an ongoing need to address these liabilities, in particular the unfunded pension liability, unfunded health care benefits and loan guarantees. 

“In respect of the unfunded pension liability, once the government’s financial position permits, the government will commit to reverting to its annual $14.5 million contribution to the past-service pension liability. 

“In the 2011/12 budget, the government will pay $1.9 million in respect of pension liabilities that were established even before the Public Service Pensions Fund came into existence; these are referred to as past-service liabilities,” the Premier said. 

Mr. Bush said it was important to point out that current-service pension contributions being paid out in addition to this $1.9 million was approximately $20.7 million. The government therefore expected to pay total pension contributions of about $22.6 million, he said. 

“Health care benefits require an actuarial review in order to establish the precise extent of contributions,” Mr. Bush said. “The government acknowledges that, based on the generous health care offered to civil servants, the total value of such health care benefits upon retirement is quite substantial. The government will seriously consider the establishment of a Health care Fund – just as the Public Service Pensions Fund was established separately to Central Government – to manage health care costs.” 

It was important to note the total value of such benefits was not payable in full at once. 

Each statutory authority and government company had competent boards of directors, the Premier said, which would oversee the financial affairs and operations of the entities and ensure sound financial decisions were made. 

“In the past, there has never been an instance where a financial institution has called in a guarantee and therefore the government has never had to meet any guarantee obligations as a result of the default of a statutory authority or government company,” Mr. Bush said.