Premier Presents Budget Address
The Premier and Finance Minister, the Hon. McKeeva Bush, OBE, JP, presented his second budget on Friday (10 June) evening with only one new revenue measure, which will be on the hedge fund industry - and no external borrowing.
Mr. Bush said his Government "has worked extremely hard to improve the Cayman Islands' state of public finances. In this respect, the achievements reached in our first two years in office have been outstanding. We have accomplished a delicate balance between meeting the pressing needs of the County and, remaining fiscally prudent."
Highlights of the budget include an enhanced private-public sector partnership to provide much needed national infrastructure, facilities and programmes - without incurring any debt. In this regard, he announced a proposed partnership agreement with the Dart Group of Companies.
To view the 2011/2012 budget documents, visit www.bmu.gov.ky and see under Budget Documents.
The full text of Mr. Bush's Budget Address as scripted follows.
Madam Speaker, it is always an honour to present the Budget Speech to this august Assembly as Minister of Finance. It is a humbling experience, especially in such challenging times, but though challenging, what is more important about the past year is that ithas offered opportunities to test the efficacy of this Government's policies. The evidence shows that so far, the country is on the right path; the path to a Better Way!
Thus far, the journey has been undertaken in an international environment that is not at all accommodating.The benefits previously associated with world-wide economic prosperity have not yet fully returned; in fact, inrecent times the global environment has featured rising oil prices, rising food prices and a sluggish economic recovery accompanied by slow job creation. These factors may serve to compound the threats of a year ago. Yet there is evidence that the country is heading in the right direction, through our Partnership for Recovery. But we must stay the course; we must make some tough decisions, to guarantee a brighter future. There is no doubt that the Government has committed to its role in the partnership, and that an enabling environment for the private sector is being facilitated.
The establishment of Ministerial Councils on Tourism and Housing, the Department of Commerce and Investment, the Tourism Advisory Council, the Financial Services Council, the National Investment Council, international meetings with investors, and setting up international investment offices, are clear examples of the Government's openness to partnership, to facilitate economic activity in the private sector.
Notwithstanding my Government's efforts, it is only by clinging to our core values of care and respect for each other, dedication and commitment to our tasks, and putting the interest of our country above self-interest, that we the people of the Cayman Islands will realise the dream of living healthy and fulfilling lives. In his inaugural address in 1961, President John F. Kennedy said, "Ask not what your country can do for you; ask what you can do for your country."
Last year I said that we have a history of stability - in our economy, our society, and in our political system. I said that our stability was founded on the backs of our hard-working people, respect for the rule of law, the freedom to allocate our limited resources and the resultant distribution of the benefits of our efforts.
Almost one year later, I am proud to say that those views expressed have been confirmed by the efforts of Caymanians and Residents, not only to maintain stability, but to manage their affairs, and the affairs of state, in a manner befitting a people who understand that there must be a first step on even the longest journey. Such resolve is truly a step in "The Right Direction"!
This was the theme of my contribution to the Government motion on the Strategic Policy Statement (SPS), in November of 2010. The emphasis in that speech was on the Government's strategies for overcoming the Islands' economic difficulties. But as I noted, the successes of economic policies must be interpreted in the social context of the country for which they were conceptualised.
Madam Speaker, the foundation of the Cayman society, the heart of its people, lies in their capacity to navigate stormy waters. Our motto "He Hath Founded It Upon The Seas" speaks to a foundation that knows what pounding waves feel like, as well as the lull of a calm sea, and how to make the best of both.
In more human terms, our foundation was built on the principles of fairness, justice and equality for all, in line with the principles on which that ever-lasting foundation, the foundation of divine faith, was built. These principles equipped our people to assess performance without prejudice; to approve reward without rancour; and to ascribe - or receive - praise without excessive pomp and pageantry.
Our ultimate goal is to marry our economy and society to guarantee the happiness of our people. As with any marriage, there must be a process of ongoing re-acquaintance and renewal. A good society demands a strong economy and a strong economy commands a good society. The tie that binds comes from open sharing that generates agreed common goals! One example of such openness is the comprehensive data-gathering of a census, that provides important input for private businesses and public governance.
In the face of new information from the Country's population Census conducted in 2010, and new information on the Country's labour force, the agreed common goals for the economy and the society have to acknowledge some perceived trends which have now been confirmed by data.These trends include a decreasing population, which has adverse implications for the Cayman Islands economy, as I have been preaching since being returned to office.
It is accordingly imperative that my Government forges ahead with an immigration policy which seeks in a responsible way to increase the country's core population with the right people. In the absence of such a policy, the revenue base is too concentrated on a limited few; and social entitlements become more expensive per head.
In light of such constraints caused by a declining population, it is important that our focus is on "Maintaining Fiscal Discipline and Providing Services", the theme of this year's Budget Address. In this regard I'm proud to say that in the upcoming fiscal year, there will only be one new revenue measure - which will be on the hedge fund industry - and no external borrowing. The Government will introduce a single revenue measure during the course of the 2011/12 fiscal year: the hedge funds sector, certain "master funds" will be regulated by the Cayman Islands Monetary Authority (CIMA) - just as they are regulated in other jurisdictions - and those funds will be required to pay a very modest fee of one thousand five hundred dollars (CI$1,500) per year.
At present, such funds are not regulated by CIMA and they do not pay any fees. Madam Speaker, the Government has received representations from leaders in the local financial services sector that such a fee could be introduced, without any adverse effect on the sector.
Madam Speaker, my Government is a caring one. We acknowledge that with the present high fuel prices, including diesel, electricity costs are a strain on many households. As well as being a caring Government, we are also responsible in our management of public finances. Accordingly, the Government will use four point five million dollars (CI$4.5 million) of the revenue expected from the introduction of the fifteen hundred dollar fee (CI$1,500) that will be payable by certain "master funds", to provide for a rebate to Caribbean Utilities Company in respect of the Company's payment of duty on the importation of diesel to produce electricity.
The four point five million dollar (CI$4.5 million) rebate will be made in respect of electricity consumed by residential customers. This rebate will reduce the monthly cost that residential customers incur for their consumption of electricity, and the Electricity Regulatory Authority will work closely with CUC to monitor the savings transfer to residential consumers.
As well as being caring and responsible, my Government is also responsive and innovative. Accordingly, there has been discussion in recent months in respect to the benefits of introducing "Daylight Savings Time" in the Cayman Islands. Several organisations such as the Chamber of Commerce, the Cayman Islands Tourism Association and Cayman Finance have indicated their support for this possibility, citing several benefits of doing so, such as:
- the financial services sector would be in sync with its major New York client base;
- the arrival and departure times from US airports would remain in step year-round;
- from a cruise tourism perspective, there would be slightly longer stays in port during summer months; and
- an extra hour of daylight could encourage more physical activity through outdoor exercise.
These are only a few of the benefits that are more commonly discussed, but there are others. In order to fully appreciate the benefits and draw-backs of adopting "Daylight Savings Time", I intend to set up a committee to explore this possibility and to make a recommendation to Cabinet on the matter.
As is well known,the budgetary process technically begins with the three-year Strategic Policy Statement, which guides the on-going management of Government's fiscal affairs. Such management has to show consistency in Government's policy approach; it aims also to minimise uncertainty, and is built around a drive to cost-effectiveness.
Not only must Government policy be developed with such characteristics, but its targeted objectives must be matched by an effective set of strategies for action. My Government will therefore evolve its strategies to pursue the 3-Year FCO Plan to meet both the short and medium term objectives that have been laid in this Legislative Assembly and put into the public domain over the past year.
Madam Speaker, our fiscal achievements thus far have been nothing less than commendable, whether seen in purely statistical terms or as a measure of Government's commitment to a "Partnership for Recovery".
As we undertook our growth strategy, we had to recognize early on, the urgency of correcting the disastrous fiscal policy of the previous Administration, under the PPM. The evidence suggests that we are on course in turning around the poor fiscal position in which we found the Country at the start of this term.
Still, Madam Speaker, there is no room for complacency. The concept of rebalancing that is at the heart of international economic recovery, is equally relevant in the Cayman Islands context, where internal rebalancing is a necessary prerequisite for sustainable economic growth.
Hence, in implementing our national debt managementstrategy, we proceed on four fronts:
- to control borrowings,
- to improve pension security,
- to increase reserves, and, as far as possible,
- to bring our budgets into sustainable Surpluses.
This strategy is embraced with future generations in mind. My Government is bound and determined to manage the country's fiscal affairs prudently, and to leave our children and grandchildren with positive prospects, not to leave them the mess we found - deficit budgets, increasing debt, eroded reserves, and inadequately funded pensions.
As I said in the Government Motion on the 2010/11 Strategic Policy Statement, the accumulation of national debt is the natural consequence of having to finance persistent fiscal Deficits. A Government may choose to borrow to invest in infrastructural development; but it begins to add up; and soon, on top of repaying the capital, there is the added burden of having to pay accumulating interest on increasing debt. This is not difficult to understand. What's more difficult is to make it a top priority that we Maintain Fiscal Discipline, now and in the foreseeable future. But do this we must. Such discipline is not optional.
Madam Speaker, there is also no room for complacency in pursuing our Labour Force Strategy, especially with the recent decline in the Country's population. One obvious objective is that unemployment must be minimised, especially in small vulnerable societies like ours.
The Country's improved fiscal performance over the last twenty-four months may allow the Government to accommodate some relief for new development, to further stimulate business activity. As I undertookin the 2010/11 SPS, my Government has offered temporary reductions in the duties on construction materials to facilitate new investment and enhance job creation.
I wish now, Madam Speaker, to look at Government's finances in the context of what we came and found, and what we have been able to achieve thus far. It is an accomplishment worth reporting!
Madam Speaker, over the course of the last two years, this Administration has turned around this country's fiscal position. We have had to do some borrowing within the last year, but maintaining fiscal discipline has been our hallmark, to the extent that even the most partisan among us would admit that Government's finances are moving in the right direction. His Excellency the Governor stated this fact in his Throne Speech. It has been a deep-seated personal fear of mine that had the Government that I lead not improved the state of public finances in these Islands, there was a grave danger of devaluation of our currency. By practising fiscal discipline, my Government has averted that danger and grim prospect.
In its first full year of office, my Government was able to reduce the unaudited Deficit for the Entire Public Sector to fifteen million dollars (CI$15 million), for the year ended 30th June 2010. For the year ended 30th June 2009, there was a Deficit of eighty-one million dollars (CI$81million). Our achievement? To reduce the Deficit by a whopping sixty-six million dollars (CI$66 million)!
Since then, the fiscal position has shown further improvement. For the first ten months of the current fiscal year, the period from 1st July 2010 to 30th April 2011, the Entire Public Sector had an unaudited Surplus of seventeen point six million dollars (CI$17.6 million). This is the combined result of an unaudited Surplus of fourteen point one million dollars (CI $14.1 million) for Central Government plus an unaudited Surplus of three point five million dollars (CI$3.5 million) for the Statutory Authorities and Government-Owned Companies.
Projections that were received from Chief Officers and Chief Financial Officers indicated that it was possible central Government would incura Deficit of four point six million dollars (CI$4.6 million) to 30 June 2011. To avoid this possibility, my Government met with Chief Officers and Chief Financial Officers to establish revised expenditure limits for the year to 30 June 2011. If these revised limits are adhered to, it is expected that the year to 30 June 2011 will end with a small Surplus.
To put this performance in context, it must be noted that the 2010/11 Budget approved by the Legislative Assembly in June 2010 indicated an Entire Public Sector Deficit of thirty-one point nine million dollars (CI$31.9 million)) for the current fiscal year ending 30 June 2011.
Although a very small Surplus of approximately four point five million dollars (CI$4.5 million) for the Entire Public Sector is anticipated in respect of the 2010/11 year, this small Surplus would represent a tremendous improvement to the projected Deficit of approximately thirty-one point nine million dollars (CI$31.9m). This outstanding improvement is not accidental: it reflects proper fiscal discipline by Government.
This improvement resulted from better than expected revenue performance, and, continued discipline in relation toGovernment's expenditures.
In terms of Government's revenue, a figure of five hundred and ten point three million dollars (CI$510.3 million) was budgeted for the fiscal year ending 30th June 2011. Recent forecast figures indicate that revenue will be approximately fifteen million dollars (CI$15.0 million) more than the budgeted figure, or about CI$525 million.
On the expenditure side, operating and financing expenses of five hundred and forty point six million dollars (CI$540.6 million) were budgeted for, but it is expected that the figure at the end of June 2011 will be eighteen million dollars (CI$18.0 million) less than this: that is five hundred and twenty-two point six million dollars (CI$522.6 million).
Madam Speaker, the results outlined above are outstanding, especially since they follow and build-on the positive results the Government achieved in its first year of management that ended on 30 June 2010. Should those on the other side of the aisle judge our performance without prejudice they would acknowledge our achievement - not that we really expect the praise.
Madam Speaker, to date Government's revenue is ahead of the budgeted figure because it reflects an underlying improvement in the economy when analysed on a sector basis.
Based on actual performance in the ten-month period ended 30 April 2011, the improved revenue performance has come predominantly from two sources: (1), domestic levies on goods and services are up ten point four million dollars (CI$10.4 million) and (2), levies on property are six point five million dollars (CI$6.5 million) more than budgeted.
On the sector basis, the two major economic sectors, financial services and tourism, are both showing significant improvements in revenue for the first ten months of the current fiscal year, when compared with the corresponding period in the previous year.
Financial services revenues for the 10-month period to 30 April 2011 are nineteen point seven million dollars (CI$19.7 million) greater than in the similar period in the 2009/10 fiscal year. Tourism related revenues for the ten-month period to 30 April 2011, are zero point six million dollars (CI$0.6 million) more than those revenues in the corresponding period in the prior fiscal year.
The above-par revenue performance in the tourism sector has occurred as a result of an eight point two percent(8.2%) increase in long-stay arrivals, which accompanied a three point nine percent(3.9%) increase in cruise-ship passengers for the ten-month period to 30 April 2011. The Department of Tourism is reporting an overall six point five percent(6.5%) over-performance in coercive revenue, when compared to the year-to-date budgeted figure, but an overall improvement of twelve point one percent (12.1%) in theten-month period ended 30th April 2011, when compared to the corresponding period in the previous fiscal year.
An outstanding performance in revenue of twenty-seven point three million dollars (CI$27.3 million) from levies on properties, has realised a collection 31% higher than expected, on the projection for the 10-month period. This outstanding performance also represents a 35% increase when compared with the corresponding period in the previous fiscal year. These great results for levies on properties are due primarily to large volume transactions effected in January 2011.
Madam Speaker, when the accounts are assessed on the basis of other indicators, our fiscal performance is equally commendable. The reported total cash balances from all sources as at 30th April 2011 was two hundred and twenty-six point six million dollars (CI$226.6 million).
When this figure is looked at on a trend basis, it constitutes a material improvement: as at 30th April 2008, the Government's cash balances stood at one hundred and twelve point six million dollars (CI$112.6 million); it decreased to seventy-seven point one million dollars (CI$77.1 million) as at 30th April 2009, and rose to one hundred and thirty-six point four million dollars (CI$136.4 million) at 30th April 2010.
For the ten-month period to 30th April 2011, the positive cash flows reported from Operating Activities (of CI $71.3 million) resulted primarily from revenue generated from the Financial Services sector. This is an encouraging indicator!
Madam Speaker, there are major benefits arising from the good fiscal discipline of the Government:
- it reduces the need for introducing revenue measures - which hurts peoples' pockets and therefore potentially hurts spending, and local investment;
- it puts checks on Government's expenses and this in turn means that the private sector can price its goods and services at a lower amount and therefore remain competitive; and
- it reduces the need for external borrowing - which in turn reduces the debt burden on the public purse, and as such Government's resources can then be more extensively utilised to provide services that the public needs.
There is absolutely no doubt that the Government is playing its part in the "partnership for recovery" through the maintenance of fiscal discipline. Such discipline will in turn play its part in making a brighter future a reality for all Caymanians and Residents in the Islands.
It may therefore be expected that the outlook for the upcoming fiscal year 2011/12 - which is presented later - will benefit from the practices of the Government over the last two years. Indeed, the 3-Year FCO Plan, which goes to the year 2012/13, embraces the fiscal discipline so evident in the Country's current direction.
Madam Speaker, to ensure a healthy and sustained economic recovery globally, rebalancing has to take place on two fronts: the external and the internal. However, the process of external rebalancing may be compromised by increases in oil prices, rising food prices and slow job creation that have characterised recent international economic developments, not to mention the impact of the continued uncertainty in the Middle-East.
Since coming to office, my Administration has had to cope with a very unfavourable global economic environment, the full impact of which was felt in the domestic economy in 2009. Though the international impact was less harsh in 2010, a more increased and sustained political disruption was carried on with calls by the Opposition for civil disobedience which has caused investor-nervousness. Nevertheless, it is the investor-friendly policy stance of the Government that has prevailed, and has caused the Country to be in a more favourable position today.
In the face of all kinds of fiscal stimulus packages across the region by other Islands, as well as internationally, my Government opted for maintaining fiscal discipline. As a result, in spite of the slower than expected economic recovery, especially in the United States and the United Kingdom, our domestic economic fundamentals are heading in the right direction.
If the recent uncertainty in the world economy is not positively resolved, my Government is prepared to be more flexible in inspiring domestic economic activity.
Our domestic recovery, which was stalled for the whole of 2009 and the first half of 2010, improved in the last quarter of 2010 and continued into the first quarter of 2011. The Country is being positioned to take advantage of the momentum from the global economic growth of approximately 5.0 percent in 2010 and the expected growth of four point four percent (4.4%) in 2011. However, we are conscious that most advanced, and a few emerging, economies still face major economic adjustments, including reforms in the financial sector.
Madam Speaker, as we identified in the 2011/12 Strategic Policy Statement in November last year, the United States and the United Kingdom are two of the countries whose recovery is closely watched by the Caribbean. The United Kingdom in its attempt to rebalance its internal and external economic fundamentals seems set for an uneven recovery period over the next few years. Economic growth in the United Kingdom is projected to be one point seven percent (1.7%) in 2011, with the unemployment rate hovering around seven point eight percent (7.8%).
In the United States, the recovery so far has been weak due to sluggish personal consumption resulting from a sharp deterioration of household net worth; currently, unemployment in the U.S remains high, at an estimated rate of nine point one percent (9.1%) as at May 2011 (according to the US Bureau of Labour Statistics). In addition, banks are trying to reduce their leverage and improve their balance sheets and have developed a bias against consumer lending. Consumers are expected to be impacted by: high debt; falling asset values; and weak credit growth.
Predictions suggest that the US economy will recover very slowly, with growth weaker than during previous recoveries. GDP reached two point eight percent (2.8%) in 2010 and is expected to again be approximately two point eight percent(2.8%) in 2011.
Unemployment will remain stubbornly high an d inflation low: US inflation was one point six percent (1.6%) in 2010 and it is expected to be approximately two point two percent (2.2%) in 2011.
Influence of Population Census and Labour Market Report
Madam Speaker, starting Census Day, October 10 last year, data collection for the Cayman Islands 2010 Population and Housing Census was conducted over the scheduled six-week period. A national Census is done every ten years, but its timing could not have been better, given that one of the nineteen broad outcome goals of the Government is "Preparing Our Labour Market for Future Opportunities".
In addition to the vital social and economic data collected in the population census, there was an accompanying labour survey.
With these data, policy makers are in a better position to assess the social impact of economic conditioning including the extent of economic hardship in the population, or any desirable direction of change in the economy.
In the case of the Cayman Islands, the labour force has a high degree of transient labour which moves in relationto the state of the economy. This has significant implications for the level of domestic demand in the economy, which becomes especially noticeable during an economic downturn. It is imperative that population trendsand, by extension, changes in the labour forceare monitored and managed, appropriately.
Madam Speaker, preliminary results from the 2010 Census show that the Cayman Islands' non-institutional population consisted of fifty-four thousand, three hundred and ninety-seven (54,397) persons.This represented a decrease of one point five percent (1.5%) compared to the revised 2009 population estimate of fifty-five thousand, two hundred and fifty (55,250). This decrease is a cause for concern, as I have noted previously.
Madam Speaker, the estimated total labour force in 2010 comprised thirty-five thousand, eight hundred and fifty-nine (35,859) persons with thirty-three thousand, four hundred and sixty-three (33,463) employed and two thousand, three hundred and ninety-six (2,396) unemployed. While the number of employed persons declined by one point three percent(1.3%), the number of unemployed rose by nine point nine percent (9.9%). Madam Speaker, the resulting unemployment rate as of October 2010 was six point seven percent (6.7%). When compared to 2009, the unemployment rate increased by zero point seven percentage points(0.7%).
Conversely, the rate of employment declined from ninety-four point zero percent (94.0%) in 2009 to ninety-three point three percent (93.3%) in 2010.
The new information from the population census of 2010, and the accompanying labour market report allows us to take stock of some of the very important economic and social parameters which are vital to the management and planning of our development. This is why we so eagerly await the publication of the full report and analysis at the end of this calendar year.
In the meantime, some important "broad-brush" points may be made:
- Of the estimated total non-institutional population of fifty-four thousand, three hundred and ninety-seven (54,397); George Town accounts for the majority, that is fifty point nine percent(50.9%); followed by West Bay (20.7%) and Bodden Town (19.0%).
- There were slightly more females (50.6%) than males (49.4%) in the population. This was evident in all Districts except in George Town. In Bodden Town, the proportion of females was higher than in any other District.
- A comparison with the 1999 Census figures shows that the population increased by fifteen thousand, three hundred and seventy-seven (15,377) persons; or by thirty-nine point four percent(39.4%), and grew at an average annual rate of three percent (3%).
If the population were to continue to grow at this rate, it would double its size by the year 2033. It is therefore the fluid nature of the population that is problematic, especially as it relates to proper social and economic planning.
Madam Speaker, Bodden Town experienced the highest growth during the inter-censal period, a 79.4% population increase at an average annual rate of 5.3%. This District has dramatically increased its share of the population over the past 30 years, from 9.5% in the 1979 Census to 19.0% in the 2010 Census.
All the other Districts have experienced a gradual decline in their share of the population over the past 30 years, except George Town, which had experienced gradual increase up to 1999. Although George Town's share of the total decreased during the 1999/2010 period, it continues to maintain the biggest share of the population.
My Government looks forward to the more detailed population census report, as well as the labour market report with additional indicators such as the size of employment, work hours and earnings, analysis by Caymanian/Non-Caymanian status, by gender, by occupation, and by industry - which will be made available as part of the Census Report to be published by the end of 2011.
Such detailed information will help in Preparing our Labour Market for Future Opportunities as we seek among other objectives during the coming fiscal year 2011/12 to:
- establish a National Workforce Development Advisory Council;
- make amendments to the National Pensions Law and Regulations;
- support the unemployed, including job placement, counselling and interest assessments;
- expand the National Employment Passport Program to new areas including Seniors@Work and Ex-Offenders@Work;
- continue to offer an enhanced programme at the Civil Service College;
- develop a national training plan that addresses lifelong learning and continuous improvement and re-training options (especially in TVET and career areas) for all Caymanians, including those with different capacities and different starting points;
- enhance careers assessment, guidance and counselling services, both for schools and job seekers; and
- complete the reorganisation of the Department of Employment Relations, to establish the Human Capital Development Agency, and the new Department of Labour and Pensions.