A declining middle class over the past five years in the Cayman Islands has been one of the major reasons the local economy has struggled to restart following the financial markets’ collapse of 2008-2009, Finance Minister Marco Archer said Monday.
During his presentation of government’s 2014/15 budget in the Legislative Assembly, Mr. Archer noted that overall unemployment had increased from 4 percent in 2008 to 6.3 percent in 2013.
However, Mr. Archer also pointed out that the higher-paying jobs tended to be the ones vanishing during the five year period.
The proportion of individual workers earning in what government considers the “middle income” range, between $28,800 and $86,388 per year, went from 44.3 percent of the labor force in 2008 to 40.2 percent in 2013. Meanwhile, those earning less than $28,800 per year increased from 44.6 percent of the labor force in 2008 to 47.3 of the workforce in 2013.
Mr. Archer’s figures, compiled from survey data by the government’s Economics and Statistics Office, show Cayman went from having roughly the same number of middle-income earners and lower-wage earners in the local economy just five years ago, to a significant disparity last year where low wage earners made up nearly half the workforce.
“The middle class has shrunk, dampening the growth of domestic demand and curtailing the ability of the economy to expand at a more robust pace,” Mr. Archer told the Legislative Assembly Monday. “Gross Domestic Product growth has not been strong enough to jump-start a recovery in the labor market.”
Both Mr. Archer and Premier Alden McLaughlin introduced a number of tax relief measures aimed specifically to bolster consumer spending and reduce the annual cost of doing business in Cayman during their budget presentations Monday. However, Mr. Archer noted that the “structure” of Cayman’s economy currently limits the ability of government to intervene in economic matters.
“We do not have a central bank which controls interest rates, foreign currency exchange rates or the levels of liquidity and capital in domestic financial markets,” the finance minister said. “In addition … the government’s fiscal policy options are limited by the Framework for Fiscal Responsibility, as we are unable to stimulate the economy through deficit budgets.”
It is precisely to avoid the kind of deficit spending that landed several European countries in trouble since 2008 that the U.K. intervened in Cayman’s budgeting process after the 2008/09 fiscal year and Mr. Archer cautioned that he was not supporting any of the policies discussed above.
“I am just highlighting that we do not have the sophisticated economic management tools available in developed countries,” he said.
One proposal among the economic incentives being offered by government in the upcoming budget, a reduction or discount in trade licensing fees for small businesses, is aimed to stimulate an important and sizeable sector of the local economy, Mr. Archer said.
According to the government statistics office in 2013, small businesses, those with 10 or fewer employees, employed nearly 15,000 people – more than 40 percent of the local workforce.
By comparison, medium sized businesses of 11 to 49 workers made up 28.1 percent of the local employment and large businesses, those with 50 or more employees, provided 30.5 percent of the local jobs.
Targeted tax cuts to assist smaller companies, in addition to a Caribbean Utilities Company rate cut on diesel fuel and a reduction on duty for most imported retail items, were what government believed was called for to address the current situation with the local economy, Mr. Archer said.
“There is a need for government to improve purchasing power of the low and middle income classes within our society by reducing their tax burden,” Mr. Archer said. “As their tax burden is reduced, their disposable income is expected to increase, which in turn will generate greater demand …”