The Cayman Islands government will achieve a much smaller budget surplus during 2017 than it has in each of the last three financial years.
Government’s Finance Ministry is projecting a $48.1 million “operating surplus” when its current 18-month spending plan ends on Dec. 31, 2017. That surplus is derived from the fact that government revenues are expected to come in that much higher than its expenses for the period.
However, the operating surplus figure does not include some $30.3 million the government has budgeted to pay off debts during the period. That amount will go toward repayment of principal amounts on the debt and, because of accounting rules government uses, is not counted in the operating budget.
If the government pays that $30 million out of its surplus figure at year’s end, the cash left over would be around $18 million.
“There is not anything wrong with debt principal repayment being excluded from the calculation of surplus,” Financial Secretary Ken Jefferson said Monday. “The accrual basis of accounting that government and private sector entities choose to have as their basis of financial statement preparation precludes debt repayments being taken into consideration when calculating surplus.”
Accountant General Matthew Tibbetts put it another way: “Since principal repayments are not classified as expenses they are not factored in to the surplus.”
Cayman’s government recorded operating surpluses in excess of $100 million for each of the previous three budget years.
Finance Minister Marco Archer explained last summer that with government’s change to multi-year budgeting, the interim 18-month budget period would necessarily lead to a reduction in the annual operating surplus amounts.
Mr. Archer said this was due to the 18-month budget encompassing two lower revenue-earning periods during tourism slow season – typically between August and December – and only one “higher earning” period – between January and April – when government collects most of its annual fees from tourism and financial services industry operations.
Opposition Leader McKeeva Bush has noted government did not put out a 12-month surplus figure for the first year of the 18-month budget cycle.
Mr. Bush alleged that this was because the total operating surplus when compared year-on-year would actually be much smaller for 2016/17.
Mr. Bush said his political party’s review of the current Progressives-led government’s budget showed that the administration had spent $36 million more between its first budget in the 2013/14 year and the 2015/16 budget which ended June 30, 2016.
“The reality is that as revenues have grown, they have allowed expenditure – as much as they say they have cut back – they allowed it to grow once again,” he said.
Mr. Bush said new fees and taxes implemented by the former United Democratic Party government between 2010 and 2012 were needed to stave off the last round of overspending by the previous Progressives administration in 2005-2009. That government’s 2008/09 budget ended with an operating deficit of $81 million.
“These revenue measures were very unpopular at the time,” Mr. Bush said of increases to work permit fees and added fees to the financial services industry. “Did we want to implement them? No.”
The Progressives administration disputes Mr. Bush’s view and noted it has approved a number of tax breaks for consumers and businesses in the past three years, including a 2 percent reduction in duty for licensed importers, reduction or elimination of trade and business licensing fees for small and micro-businesses, and a 50 cent per gallon reduction in stamp duty charged to Caribbean Utilities Company on the import of diesel fuel.
Minister Archer estimated the tax breaks had cost the government close to $30 million annually in revenues.
The pre-election economic and financial update stated that government’s closing bank balances at Dec. 31, 2017 would be $353.5 million. Its central debt by the end of that year would be around $451 million, leaving government in a much stronger cash position than it was when the Progressives took over the government in May 2013, Mr. Archer said.
The report also noted the government’s compliance with all legal budgetary requirements has given the Cayman Islands control over its own finances as of July 2016, a position it had not enjoyed since 2009 – when the U.K. had to pre-approve all budgets taken to the Legislative Assembly.