UK agrees cuts not taxes

Following last week's visit to the UK to discuss the country's fiscal situation and the new Miller report the premier said this morning that the UK has agreed to the Cayman Islands government tackling the 2009/10 budget deficit through cuts and not taxes. Mckeeva Bush said at this morning's press briefing that the FCO was allowing the CIG to work on a three year budget plan that focuses on reducing public expenditure rather than new revenue sources. Depending on the extent of cuts government can make over the next three months and the three year plan, Bush said the UK has also agreed to limited borrowing if necessary at the end of this year to address the deficit. But he said the FCO has stated it is not willing to review the current net-debt ratio limit for more borrowing other than for emergency situations.

Bush described this recent meeting with FCO officials as very good and even though they were still keen to see Cayman introduce taxation they were willing to allow government to try and tackle the budget imbalance through cuts in public service in the first instance. Armed with the Miller Commission's report, the result of the independent review by James Miller and David Shaw, Bush presented his case to the UK based on its recommendations which focused almost exclusively on spending cuts as the way forward for Cayman.

The premier said that the UK had agreed to most of the points made by the report and agreed that CIG needed to cut operating expenditure. As a result Bush warned the civil service that there would be significant cuts coming and also spoke of job cuts in the service over the next five years.

Bush made it clear his government agreed with most of the recommendations in the report and intended to implement some of them and had told the UK that he wanted to pursue these recommendations as an alternative to any kind of direct taxation.

The report states that Cayman should not introduce any direct taxes, that it privatize and divest government assets, restructure government departments and statutory authorities , cut civil servants salaries and benefits and reduce the head count as well as increase the retirement age to 65.

The FCO generally agreed with the Cayman Islands Government on the majority of the recommendations made by Miller, the premier added but the UK was disappointed that the report did not recommend broadening the revenue base to include taxation.

However, the premier said the FCO seemed to understand that Cayman needs to examine a broadening of the revenue base in a way that protects the country’s economy. Despite the fact that the UK said it had wanted to see more analysis in the Miller Report on the question of what types of taxes may be suitable for the Cayman Islands., Bush said in the end it accepted the goal of the CIG to secure fiscal sustainability by reducing and controlling its expenditures and its borrowing levels.

The premier rejected the opposition's idea of extending net debt ratios and further borrowing which he said would undermine the principles of sound fiscal management.

'Over the past few weeks much has been said, particularly by the opposition, regarding the government’s approach to addressing the current fiscal challenges which they largely created, as well as on how we might engage with the FCO,' he said.

While he acknowledged the criticisms made at him for continuing to point the finger of blame he said he problem was the PPM was to blame.

“Who do you think made this mess?' he asked. “The man in the moon?” Again, he reminded the country how he had warned the previous administration about over spending and extensive borrowing on the eve of the economic crisis. However, he said he was told by the then Leader of Government Business that not on the kindest of mornings would he have listened to Bush.

Th premier said historically Cayman had always borrowed prudently and it was the last administration that had caused the problem of excessive borrowing and spending which his government would address.

“Throughout this crisis the government has held strong to five key principles that still hold true today after the meetings with the FCO and after reading the Miller Report,” Bush stated.

He said his government was committed to addressing the rapid growth in the public sector and while the elected arm of government may not have control of the civil service, as Minister of Finance, he said he was concerned about the lack of control over public expenditure and he would ensure cuts were made.