EDITORIAL – The budget: Plenty of funds, little flexibility

Last week, we devoted two separate front pages of the newspaper to two key questions: 1) How does the Cayman Islands government spend its money? 2) How does the government get its money?

Those inquiries are deceptively simple.

With nearly $1.2 billion in total public spending slated for the upcoming 18-month budget cycle, distributed throughout well over 100 ministries, portfolios, departments, units, statutory authorities and government-owned companies – the answers to those questions can be quite complex, or even vary according to the perspective you adopt.

For example, in an early (unpublished) version of a graphic our newsroom put together on central government’s $862 million in projected expenses, we categorized spending according to “personnel costs” (47 percent), “supplies and consumables” (16 percent), “outputs from public authorities” (18 percent), etc.

But where, then, is the $50 million or more in spending on social services? What about education? Healthcare?

newer-core-pb-2To their credit, Finance Minister Marco Archer and his staff were helpful and responsive. They provided us with their own chart – one that’s not in the official budget – breaking out expenditures by subject area: national security (22 percent), education (17 percent), health (15 percent), social security and welfare (9 percent), etc.

That’s the graphic we published on the front page last Tuesday.

But it doesn’t tell the whole story on government spending. One key theme that should be highlighted is how “inflexible” the Cayman government’s budget actually is – despite core government expecting $908 million in revenue in the next 18 months.

Nearly half of core government’s budget is tied up in personnel costs, a line item our political officials continue to regard as sacrosanct.

Factor in other “locked-in” expenses such as debt financing and depreciation, and the government doesn’t have much money “left over” to invest in things such as infrastructure or ambitious new programs. Consider the government’s non-robust spending on capital projects of $48 million for the next 18 months, amounting to 6 percent of core government spending.

That includes $8 million for the new John Gray High School (a project that, according to March 2012 estimates, will take $43 million to finish), $7 million for land for a new solid waste facility (which in total will cost tens or hundreds of millions of dollars), $3 million for roads (compared to the roughly $9 million cost of completing the government’s half of the Esterley Tibbetts Highway expansion) and $500,000 for cruise berthing (a mere sliver of the $150 million to $200 million the dock will actually cost).

new-capital-(Read-Only)Because the government has very little money to spare, officials must turn to “public-private partnerships” if they hope to get major projects completed – i.e., highways, cruise piers, etc.

Since cutting existing expenses does not appear to be an option for our government, the alternative is to increase revenue. The most obvious way to increase revenue is to increase taxes. While that’s almost always a bad option, in Cayman’s case it isn’t much of an option at all.

Our analysis in Friday’s Compass of the “revenue side” of the budget suggests the government seems to have just as little flexibility in raising new funds and fees as it does on the expenditure side. It is already taxing “almost everything.”

Over the next 18 months, the government expects to bring in more than $152 million from import duties, nearly $100 million from work permits and $55 million from stamp duty on land transfers. That’s just the top of the list.

Other, less grandiose but just as confiscatory, revenue categories include $1.3 million for police clearances, $300,000 in drivers’ examination fees, $30,000 for sale of laws (we assume photocopies of laws), $3,000 in refund processing fees, and, to cite one of our favorites, $1,000 in temporary work permit application fees for an entertainer (we wonder who that is).

In brief, although our country thankfully has no income tax, everything else that can be taxed is already subject to tax – and plenty of it. Under the status quo, officials have little freedom (or fortitude) to alter seriously either expenditures or tax rates.

As we’ve written before, in order to address Cayman’s looming liabilities and long-term infrastructure needs, it appears we have only one way left to go: that is, up – meaning growth, in terms of population, development and the tax base.