Government presents record-size budget

No new taxes or new debt

Finance Minister Roy McTaggart gives details of the 2020 and 2021 budgets in the Legislative Assembly on Friday. - Photo: Stephen Clarke

Finance Minister Roy McTaggart presented a two-year budget on Friday that will exceed $1.6 billion in government revenue and not require new debt nor impose new taxes and fees on the public.

The minister expects increasing operating revenues for the years 2020 and 2021, reflecting that “the country’s track record of economic growth is expected to continue without increasing the tax burden on Caymanian families”.

Projected operating revenues of $825 million and $849 million in the two budget years will exceed operating and financing expenses by $65.3 million and $75.3 million, respectively, according to government estimates.

While the Cayman Islands government aims to continue to pay down debt in the next two years, reducing core government debt by about $70 million, the budget also includes capital investments into infrastructure and statutory authorities of $182.6 million in 2020 and $121.4 million in 2021.

Few countries in the world are able to generate budget surpluses in the way Cayman has done in recent years, McTaggart said, noting that fewer than 20% of governments took in more revenue than they spent. “The Cayman Islands ranks 7th in the world with a budget surplus equal to 4.4% of our GDP,” he said.

The continued strategy of generating surpluses would build cash reserves, fund the planned capital investments and eliminate the need for new borrowing, the finance minister added.

Later this month, government will repay a $261.3 million bullet bond when it comes due and refinance about $153 million of that debt with a loan. In the process, government will reduce its net debt by $108.3 million in 2019 alone.

The 2020/21 budget takes into account the growing potential for a slowdown in the global economy as predicted most recently by the International Monetary Fund’s World Economic Outlook in October.

Compared to the average annual GDP growth of 3% in recent years, government is working on the assumption that local economic growth is going to slow somewhat to 2.2% in both 2020 and 2021.

But despite any headwind in the global economy, the minister said, the fundamentals of Cayman’s economy were strong. “Our key macro-economic indicators are telling the story clearly,” McTaggart said.

He noted that his government was a proponent of economic freedom and believes “the best place for the dollars earned by the hard work and enterprise of Caymanians is in their pockets, not in the government coffers”. Government had to support growth and, as far as possible, keep out of the way of private sector growth by minimising the administrative and financial burden imposed on local businesses.

The budget would therefore maintain duty concessions that are already in place. They are reduced import duties on fuel used by CUC to generate electricity, for licensed traders and on building materials, as well as reduced trade and business license fees for new licensees, lower stamp duties for first-time Caymanian property buyers and incentives for the Sister Islands.

Major spending projects by the government include education, technical and vocational training, community policing, child protection, a residential mental health facility, traffic management, border protection and the Coastguard unit.

Government will also establish a new Ministry for International Trade, Investment, Aviation and Maritime Affairs and support financial services policy functions and the Monetary Authority to keep pace with international regulatory changes. Additional staff required for these functions is expected to increase personnel costs across government to $363.6 million in 2020 and $373.5 million and 2021.

The planned expenditure increases further include additional spending for seniors and health insurance services provided by the Cayman Islands National Insurance Company.

Infrastructure investments also cover the continued development of the John Gray High School campus and upgrades to the road network on all three islands.

The finance minister painted a rosy picture of public finances overall, stating that six years ago it scarcely seemed possible that government’s finances would be in the position they are in today, citing: “Five years of 3% growth, falling unemployment and projections for continuing growth. Year-on-year budget surpluses, growing investment in public services and infrastructure, and reducing public sector debt.”