Budget plan: Not bad, but not bold

The Cayman Islands government’s proposed budget for the next fiscal year calls for several tax cuts, stipulates no surprise revenue measures and takes modest steps toward meeting financial goals set by U.K. authorities.

Overall, it’s not a bad budget. But it’s not a bold budget, either.

The Progressives’ 2014/15 spending plan includes $658 million in operating revenues for core government and $508 million in core operating expenses. Compared to last year, that’s an increase in revenue of 1 percent, and a drop in expenses by 2 percent. For the entire public sector — including statutory authorities and government-owned companies — operating revenues total $873 million (an increase of 2 percent) and expenses total $711 million (an increase of 0.4 percent).

The savings and unexpected revenue increases being touted by government are, in the context of the overall balance sheet, quite marginal. The new budget nibbles around the edges of government’s systemic spending problem without taking a chomp at the central issue; that is, that the public sector has far too many employees and is much too involved in areas where there is direct competition with private industry.

Here are the key figures: While operating expenses are declining for core government, the amount it pays for “personnel costs” — wages, salaries and benefits — is set to increase by 3 percent, and at $242 million will constitute 48 percent of core operating expenses for next year.

Remaining basically untouched are inherited funds with opaque and often politically dubious purposes, such as the erstwhile “Nation Building Fund,” now rebranded as “Young Nation Builders Scholarships.” Also being left intact are the massive subsidies to the usual suspects, most notably, $9.5 million to the Cayman Turtle Farm and $23 million to Cayman Airways; in addition to a puzzling $6.2 million line item on the unfinished John Gray High School campus, earmarked for, of all things, a multi-purpose sports hall.

The new budget is representative of an incremental approach to change, rather than a radical departure from the status quo, which we’d like to see. It’s a trimming of the sails, not a change of tack.

There are good things in the budget. We support the proposed duty cut on diesel fuel supplied to Caribbean Utilities Company, the 2 percentage point reduction on import duty for retailers and the reduction of licensing fees for small businesses.

In particular, the reduction of duty on diesel fuel, from 75 cents per imperial gallon to 50 cents, should lower the cost of electricity for everyone on Grand Cayman, and by lowering business costs, should effectively lead to broader savings for consumers, too.

Indeed, the diesel duty reduction is such a good idea that government should consider abandoning the duty altogether — Make it zero. According to the government’s arithmetic, that should lead to a 12.9 percent reduction in monthly power bills, a real help to the populace. The funds are better off in the people’s pockets than in the government’s coffers.

Similarly, while we are somewhat pleased to see a “one-off” 2.5 percent bonus for civil servants, we suggest that government go ahead and bump that up to at least the 3.2 percent increase that has been repeatedly promised, then withdrawn, over the past few years.

If the budget is a reflection of the political will of our country’s leaders, then it falls short.

It’s important to keep in mind, however, that our government’s spending plans often change in the middle of budget years. That can be for better (meaning less) or for worse (meaning more).

The hope of this Editorial Board is that the government is simply awaiting feedback from its Ernst and Young consultants before taking decisive, substantial action to reduce costs, which will have to be done by reducing the size of the civil service, probably by outsourcing or eliminating entire public entities.

That doesn’t, and shouldn’t, have to wait until next year’s budget cycle.

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