Premier: Budget year move not costly

Although it will involve some legal changes and budgetary restructuring within government departments, Premier Alden McLaughlin said a move to calendar year budgeting for Cayman shouldn’t be costly.

During a debate last week in the Legislative Assembly, Mr. McLaughlin said he was “hearing things in the margins of the Chamber” that switching Cayman Islands government fiscal years from January to December would be expensive. In addition, the government eventually expects to move – as of Jan. 1, 2016 – to multiyear budgeting, or planning public sector expenditures over a two-year period.

“Some of the things that I have heard are that, somehow, this is going to require major amendments to legislation that has set up the statutory authorities an government-owned companies,” Mr. McLaughlin said. “I’m not sure on what basis that is drawn, what is required is proper planning for the move.

“This change can be made … by a single change to the Public Management and Finance Law. We are not doing this at a whim.”

Currently, government’s finance law requires budgets to be prepared on an annual basis. Finance Minister Marco Archer has proposed changing that as of the next fiscal year, which starts on July 1, 2014.

Mr. Archer’s plan would entail moving the budget cycle to an 18-month period between July 2014 and December 2015. The two-year budgets would then begin in January 2016.

“A lot of thought has already gone into this as a policy, but a great deal more will have to go into working out the mechanics of it and to make sure we get it right,” Mr. McLaughlin said.

The think-tank International Budget Partnership recently penned a position paper on the subject of multiyear budgeting, which the group supports.

However, the partnership advises caution in approaching multiyear planning arrangements, particularly in developing countries.

“The feasibility in practice of a multiyear perspective is greater when revenues are predictable and the mechanisms for controlling expenditure well developed,” the group notes. “The U.K., for example, has recently moved beyond a multiyear perspective to an outright three-year budget for most budgetary accounts. These conditions do not exist in many developing countries.“

The multiyear approach is key for countries “where a clear sense of policy direction is a must for sustainable development.”

The dilemma often arises in situations where multiyear budget is most needed for policy direction, but least feasible from a practical revenue projection planning standpoint.

“To try and extend the time horizon for the budget process under conditions of severe revenue uncertainty and weak expenditure control would merely lead to frequent changes in ceilings and appropriations, quickly degenerate into a formalistic exercise and discredit the approach itself,” the International Budget Partnership notes.

Yet to be formulated correctly, government budgets still need to “take into account events outside the annual cycle”, the think-tank group states.

Cayman Islands Auditor General Alastair Swarbrick indicated his office would be taking a look at government’s budget plans, once they were formalized.

“The PMFL, the law governing the Government’s budgetary and financial reporting responsibilities, currently requires an annual accountability cycle consistent with practices in other jurisdictions,” Mr. Swarbrick said. “Once we get more details of the government’s plans, we will be conducting our own assessment to determine the implications against the accounting standards, including the suggestions for reporting over an 18 month period.”

From Premier McLaughlin’s perspective, Cayman could address a number of issues by switching to calendar year budgeting and making budget estimates greater than one year in length.

First, moving the budget process from January to December takes budget planning away from the elections process. Typically, Cayman’s general elections are held every year in May.

In addition, multiyear budgeting could eliminate the need for government to spend eight or nine months out of 12 in the financial planning process.

“It also makes a tremendous amount of sense from the government’s financial position,” Mr. McLaughlin said. “Financial services-related revenue accounts for nearly 40 percent of the government’s total annual revenue.

“As most of these revenues are received in the January to March time frame, it means that, with the budget year starting on the first of July, the government can be as much as nine months down the track before it realizes that revenue is not tracking the way that it hoped and by then it is almost impossible to change course, at least in a way that materially affects expenditure.”

Also, while government presents its economic information on a July-through-June basis, the government Economics and Statistics Office presents that information for each calendar year, making it difficult to reconcile the various numbers.

“We believe that [moving the budget year] makes all the sense in the world,” Mr. McLaughlin said.