Editorial for 28 June: The fallacy of government 'stimulus'

In presenting the interim budget, Premier Alden McLaughlin
gave his view of the Cayman economy.

Typically, governments aim to promote business growth to be
able to finance public sector activities, because the private sector is the
overwhelming part of the economy.

At first glance, the PPM-led government seems to agree. “In
my opinion, it makes absolutely no sense for the government to go about
improving its financial position while ignoring the economy. This would put the
livelihood of our people – education of our children, healthcare,
infrastructure, personal safety and everything we enjoy today in great
jeopardy,” the premier says.

He could mean don’t hurt business with excessive taxes and
fees, so that the economy is strong enough to generate the government revenue
needed to pay for public services. Unfortunately, that is not what the premier
is saying.

The premier argues that government is now a major player in
the economy and claims this is precisely the reason why it cannot be cut.

“If expenditure reductions are not managed carefully, there
could be significant negative shocks to the Cayman economy which can quickly
compound and create recessionary pressures,” he says.

In the view of the new government, government comes first
and the private sector comes second. Not only that, government actually becomes
the economy.

The premier claims the ambitious targets to cut government
expenditure agreed with the UK by the previous government have unintentionally
stifled the rebound in the Cayman economy.

Yet, total government expenditure is higher now than it has
ever been. And, after initial reductions, government personnel costs have
climbed back to the high levels of 2008/09.

The government says it agrees with the principles of the
Framework for Fiscal Responsibility that is now part of the Public Management
and Finance Law but the four year plan agreed by the UDP government with the UK
is overly ambitious.

Instead, government wants to present its own “more gradual,
phased approach” over a longer time period to comply with the Public Management
and Finance Law. And it wants to “balance” this compliance with the need for
government to stimulate the sustainable economic growth and diversification.

In other words, the government wants to spend more now and
hopes the revenue will follow later.

It should not come as a surprise that under the previous PPM
government, the cost of the civil service exploded. Between the budget years
2005/06 and 2008/09 the number of civil servants in core government increased
by more than 10 per cent and government personnel costs jumped from $172.4
million to $252.3 million, a massive 46.3 per cent in just four years.

If government really wants to be a partner to the private
sector, it should start by recognising that, without direct taxation, public
sector expenditure in Cayman is largely funded by private sector businesses.

And while 25 per cent of working Caymanians are government
employees, something that would be regarded as excessive anywhere in the world,
75 per cent are employed by private companies.

These companies had to cope with government fee hikes at a
time when they could least afford – during the recession – to fund a civil
service apparatus that has grown too large and, so the government claims, is
now too difficult to cut.

Stimulating the economy should mean, first and foremost,
creating an environment that helps businesses grow, not government.

 

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1 COMMENT

  1. Here’s an example

    Immigration requires a police clearance…

    Police Clearances are done in person – forms have to be submitted one day and collected a day later and the offices are open during working hours so lets assume half a work day in total.

    multiply that by the 22,000 expats and the cayman economy loses 11,000 man days annually to getting police checks – that has to be MILLIONS of dollars of lost productivity.

    In these days of computerisation it would take no time for immigration to be plugged in to the police database and do the same check in a second – If the government needs the fee, simply add it to the work permit cost – the burden on business is the same either way without losing the employee for half a day.

    Do guys and gals who spend all day stamping and signing pieces of paper get any job satisfaction ? Are their lives enriched by their contribution to the self perpetuating bureaucracy…
    Personally I think that they deserve more respect from their government than being reduced to the role of paper pushing robots, slaves to the machine.

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