Cayman cashed up, but debts loom
Targeted tax cut measures proposed in the 2014/15 spending plan by Premier Alden McLaughlin include a reduction of import duties on diesel fuel supplied to Caribbean Utilities Company. The duty cut would take the rate from 75 cents per imperial gallon to 50 cents per imperial gallon. That reduction is set to occur in January 2015.
The average customer was expected to see a 4.3 percent reduction on monthly power bills from that rate cut, assuming fuel prices stay at roughly current levels, Finance Minister Archer said.
The fuel duty reduction will cost government $8.4 million annually in revenues.
The Progressives-led government also seeks to reduce import duties to “licensed traders” from 22 percent to 20 percent on “most items offered for retail sale,” again with the assumption that prices of consumer goods would be cut. The rate cut is to take effect in July.
A third reduction proposed included reduction of small business licensing fees on a sliding scale. Trade and business license fees for small businesses [those with 10 or fewer employees] based in George Town and West Bay would be cut by 25 percent, fees for businesses located in Bodden Town, North Side, East End and Little Cayman will be cut by 50 percent and fees in Cayman Brac would be cut by 75 percent. Those discounts will also take effect in July.
In addition to the private sector incentives, government civil servants will be getting a little something extra in their paychecks next month, Premier McLaughlin said.
“The government has taken the decision to award its staff a one-off gratuity payment equal to 2.5 percent of annual salary … payable by the end of June,” Mr. McLaughlin said.
The bonuses for the civil service were expected to cost in the range of $4 million, but that amount – if paid in June – would seem to be subtracted from the current 2013/14 spending plan, not next year’s budget. Government ministers did not clarify that issue during speeches Monday.
Mr. Archer said government’s operating surplus as of April 30 was $108.1 million, meaning revenues came in much higher than expenses with two months left to go in the current budget year.
The finance minister advised caution with regard to spending excess government funds, in spite of the hefty cash balances Cayman’s public sector contemplates. Mr. Archer said capital project expenses and payment of debts cost a combined $65.4 million. That amount would have to be subtracted from available cash, leaving government with $53.8 million left over by June 30, the end of government’s current budget year.
“This does not mean that the government is able to spend the $53.8 million in cash, because government has to build up its cash balances,” Mr. Archer said referring to U.K. requirements under the Framework for Fiscal Responsibility.
The upcoming budget, which takes effect on July 1, assuming passage by the Legislative Assembly in the coming weeks, proposes revenues of $657.7 million for central government and expenditures of $508.3 million.
When factoring in $28.5 million in interest payments on debt for the year and an additional $7.1 million surplus profit from statutory authorities, the operating surplus for the upcoming year is forecast at $128 million.
Mr. Archer said government was shooting for $256.1 million in cash balances, $129.9 million of which will go into the operating bank account, leaving the rest in designated reserve funds.
Central government would still be left with $523 million in debt by next summer, Mr. Archer said, even if all goes as planned over the course of the 2014/15 year.
How government spends
The largest portion of the $508.3 million expenses proposed in the 2014/15 budget will go to personnel.
Salaries, pension and health care payments for government employees will be just under $242 million for the year, a $7.4 million increase over what it cost in the current budget.
The increase in personnel spending is mainly due to an increase in civil service staff to fill vacant posts in public safety departments and in other areas. Another $11.4 million went toward government’s past due pension liabilities to retired workers.
Statutory authorities and government-owned companies had collective budgets of $94.1 million, down about $6.5 million from the current budget year. The loss leaders among the government companies were the Cayman Turtle Farm, with a subsidy budgeted at $9.5 million, and Cayman Airways, spending another $4.85 million above what it is already given by central government.
Government plans to spend $22.7 million on non-government organizations, including $11.4 million in overseas medical care, $2.5 million for legal aid services, $1.6 million for rental accommodation for needy residents and $1.5 million for the Cayman Islands Private Schools Association.
Transfer payments of $31.3 million include $11.4 million for local and overseas scholarships, $7.8 million in poor relief payments, and $6.2 million in benefits paid to veterans and seamen.
Paying off interest alone on Cayman’s debt will cost $28.5 million next year, with another $24 million being paid toward principle amounts owed.
Government’s capital projects budget of $47 million for the next year includes $6.2 million for the completion of the multi-purpose hall at the new John Gray High School, $5 million for local road construction and improvements, $4.7 million for “upgrades” at the George Town landfill and $2.3 million for new equipment for police, fire and prison officers.