Former Miller Commission chairman “disappointed” by lack of action
James Miller, the former chairman of the Miller Shaw Commission, said while he cannot expect the Cayman Islands government to follow the recommendations made in his report in February 2010 on how to put the islands’ government finances on a sustainable footing, he is nonetheless disappointed by the lack of implementation.
The commission was appointed in 2009 to assess Cayman’s fiscal situation and economic health following the global financial crisis. It concluded that the main obstacle to restoring government’s fiscal financial balance was, among others things, the “crippling”, “excessive” and “unsustainable” personnel costs.
Mr. Miller and fellow commission member David Shaw advised against the introduction of additional revenue measures, in particular direct taxation, and recommended major spending cuts, the privatisation of government-funded enterprises and the sale of government assets.
“I have no right to expect, much less demand, that Cayman follow the recommendations we made,” Mr. Miller said while speaking at the Cayman Financial Review Speaker Series on Monday, 8 April at the Westin Grand Cayman Seven Mile Beach Resort & Spa.
However, the difference between the positive reaction to the report by lawmakers and the actual actions taken on the recommendations, which would “lead to an improvement in the lives of Caymanians”, left him dissatisfied, he said.
“And in that respect I have to tell you that I am disappointed, especially given that, at least by perception, both parties in the legislature welcomed the report and endorsed its findings. They made statements about carrying out many of its recommendations. So the rhetoric was much greater than what actually happened and that’s very disappointing.”
Following the release of the report, the Cayman Islands government refrained from introducing direct taxation, but increased a wide range fees and levies, including work permit fees, against the advice of the commission’s report. At the same time, no successful efforts were made to privatise government-funded entities.
Asked what his specific recommendations for privatisation would be, Mr. Miller mentioned Cayman Airways and the Turtle Farm.
“I don’t see any reason for Cayman to have an airline,” he said. “It should be privatised. I don’t see any reason for [government to be involved in] the Turtle Farm. It should be privatised.”
Other projects that should be pursued with private sector involvement are the expansion of the length of the airport runway and the berthing facilities at the George Town port, Mr. Miller said. “Why was it not done within the last three years?”
Mr. Miller admitted that he has not closely followed the measures taken to cut government’s operating costs, but he said he believes some progress has been made to reform civil service pay and numbers. “So I am pleased about that.” Mr. Miller, who from 1985 to 1988 was director of the US Office of Management and Budget as well as a member of President Ronald Reagan’s Cabinet and a member of the National Security Council – and during this time able to shrink the US government – said he was struck by the similarities of the problems in the US and Cayman.
For the Cayman Islands, Mr. Miller advocated a constitutional amendment to fix the size of government as a percentage of gross domestic product and put in place procedures to confine spending, including the cost of regulation, to this limit. Currently, the framework for fiscal responsibility, which was passed into law last November, only restricts the amount of debt financing for core government, statutory authorities and government companies in relation to core government revenue.
In addition, government should incorporate in each budget the cost of future liabilities, including those of civil servants’ retirement and health care, Mr. Miller said. “Businesses do this all the time. Governments can, too.”
A valuation of the post-retirement healthcare benefits for civil servants completed in 2004 valued the accrued liability for post-retirement healthcare benefits for retired and current public servants and eligible individuals no longer employed by the public service to be about US$798 million. This is likely to have increased according to the offering memorandum released by government as part of its government bond issuance in 2009.
Reiterating his previous recommendations, Mr. Miller said government should complete all outstanding audits, keep them current and address all deficiencies immediately. He also reminded the Cayman Islands government to be mindful of the six principles of responsible financial management included in the Public Finance Management Law. “You are not meeting them all,” he said, referring to the rules requiring a net debt of no more than 80 per cent of revenues, a budget surplus and the maintenance of sufficient cash reserves. Government was not compliant with the three rules at different times during the past budget years.
Finally, Mr. Miller said Cayman should resolve to end deficit finance and pay off government debt within a short time period of five to 10 years, and resolve never to rely on deficit finance again. “Following these suggestions will not be easy, I am sure, but the rewards for your children and grandchildren will make it more than worthwhile,” he said.