Strategic Policy Statement 2015/16
Madam Speaker, this motion seeks the approval of this Honourable Legislative Assembly for the Government’s 2015/16 Strategic Policy Statement, which the Minister of Finance and Economic Development has just tabled and ably spoken to and outlines my Administration’s key fiscal priorities and broad strategic outcomes for the Cayman Islands. It also puts forth the Government’s financial targets for the next three financial years, covering the period 1st July, 2015 to 30 June, 2018.
When I stood before this Honourable House a year ago to move a similar motion seeking the approval of this House for the 2014/15 Strategic Policy Statement it was with hand on heart and prayer in the air that this Government would succeed in meeting the objectives set forth in that document. I believe we have, in the main, so far delivered on our pledges and continue to make strides to keep the Cayman Islands on a steady course
Madam Speaker, through this statement it is our intention to let the public know of Government’s broad budgetary policies. While the SPS is not as detailed as the annual budget, it is meant to be used for medium-term planning purposes.
In reviewing Cayman’s financial outlook for the next projected budget year and further into the future we see a positive outlook with continued fiscal restraint, which is necessary in the short term. We are poised for compliance, prepared to maintain a declining debt balance while increasing our cash balance.
Once again I compliment the Minister of Finance and the team for their hard work. I also commend everyone in Government for restraining their budgetary requests for Fiscal 2015-16. Their understanding of our need for fiscal prudence meant they did not bring all of their “wants” to the table and while it would be my desire to give everyone everything they want, it just isn’t possible.
I have to stress that the 2015-16 budget year is crucial for Government as we have to comply with all Framework for Fiscal Responsibility ratios and come December 2015, we must legally comply with the mandated cash day’s ratio of 90 days. We forecast cash days to be 96.3 in the 2015-16 budget year and increasing to 202.6 days in the forecasted 2017-18 budget.
While the upcoming fiscal year is crucial, Madam Speaker, we are facing some early budget pressures. As usual, we have already exceeded the current budget we set for dealing with refugees as it is an unpredictable area. Add to that the more than $5 million made in concessions and waivers from the previous administration and you realize we still face fiscal challenges.
But there is good news. Our managed vacancy programme is working with early savings noted in personnel costs and the Government will retain positive cash outcomes throughout the fiscal year, meaning we will not require an overdraft facility. Revenues of $5 million collected in the first quarter from annual permanent residents work permit fees is already $2.1 million more than the full budget year.
More good news is that Cayman Airways and the Port Authority are two statutory authorities that are reporting positive early results. We have also recorded a $2.7 million positive variance in stamp duty on land transfers for the first quarter.
Things are getting better, Madam Speaker.
Based on the economic performance of 2013 and the first six months of 2014, estimated GDP growth for FY 2013/14 stands at 1.6 per cent while the forecast for FY 2014/15 remains at 2.1 per cent.
Madam Speaker, those growth rates are the strongest estimated so far for the country during the post-2008 global financial crisis period. We have seen economic growth in wholesale and retail trade; hotels and restaurants; transport storage and communication; real estate, renting and business activities; and construction.
Because we are fiscally prudent, we project overall revenue of $661,224 for the 2015-16 budget year up from the $648,172 unaudited figure in the 2013/14 budget. We are forecasting to grow the economy year on year with revenues of $672,205 in the 2016/17 fiscal year and $703,993 in fiscal year 2017/18.
Additionally Madam Speaker, because of outstanding operating performance in 2013/14, Government’s closing cash balance for that fiscal year was $10.9 million higher than originally budgeted.
Because of this, the Progressives-led Administration was determined in the 2014/15 fiscal year to relieve some of the heavy pressures being borne on the local economy and decided to reduce the cost of doing business in the Cayman Islands. As we all know Madam Speaker, the private sector is the engine that drives our economy.
We have reduced the import duty on diesel fuel imported to Caribbean Utilities Company and we reduced import duty to licensed traders by 2 percentage points to 20 per cent at a cost of $4 million. In addition we have:
• Reduced the duty on building materials to 15 per cent from as high as 22 per cent for some items.
• Removed the import duty on critical ingredients for local bakeries.
• Amended the Customs tariffs to give a duty rate of 10 per cent to electric motorcycles and electric segways - the same rate as for electric cars, and a 15 per cent duty on hybrid motorcycles - the same rate for hybrid cars.
• Implemented a series of changes to Trade and Business License Fees as an incentive to support the creation and development of new businesses. Businesses with 10 or fewer employees are being permitted to pay their annual license fee in quarterly instalments instead of the typical one-time full payment.
While Government is taking care of the private sector, we are also working internationally to woo investment in and further shore up our Financial Services Industry.
The Government, through the Ministry with responsibility for Financial Services, Commerce and Investment will seek to partner with Cayman Finance to carry out a jurisdictional branding exercise to further promote the Financial Services Industry. It will also review and propose changes to the Liquor Licensing Law, the Trade and Business law and Local Companies Control Licence Law.
The Government will also commence review work on the development of a legislative framework to deter anti-competitive practices by businesses operating in the Cayman Islands.
To ensure the continued competitiveness of our jurisdiction, significant work continues to be done to modernise the Intellectual Property Legislation relating to patents, trademarks and copyright.
Madam Speaker, Miguel de Cervantes tells us in his novel Don Quixote that the “Proof of the pudding is in the eating”. In Cayman the proof that the Progressives-led Administration is living up to its promises of restoring stability to the country is in our continuing good stewardship of the country and fiscal prudence.
It is because of our fiscal prudence that I can announce today that this Government intends to give the Civil Service a 4 per cent cost of living adjustment starting in the 2015/16 financial year. Government did not want to give less than the 3.2 per cent taken from them by the previous administration; in fact this administration would have liked to have given more, but this is all we can afford at present.
Madam Speaker, the previous cost of living adjustment of 3.2 per cent afforded to Civil Servants adjusted their salaries for inflation up to 2008 levels at that time. When the previous elected Government reversed that adjustment, Civil Servant salaries reverted back to their 2006 inflation adjusted levels.
Since 2006, inflation has grown by 11 per cent. That means the present purchasing power of Civil Servants is approximately 11 per cent less in today’s dollars than what they were eight years ago in 2006.
Additionally, the Government placed a ban on all within-grade salary increases; placed restrictions on the payment of duty and acting allowances; and stipulated that employees who reach the retirement age and are rehired under fixed term contracts be placed at Point 1 of their salary scales. This resulted in a pay decrease of up to 26 per cent for some employees.
Statistics compiled show that more than half of all Civil Servants earn below $3,333 per month.
It should also be noted Madam Speaker, that 3 out of 4 employees working for the Civil Service are Caymanians. This situation is causing a fall in the living standards for many Caymanian families who have chosen to serve their country through a career in the Civil Service.
Whilst it may not bode well for retirement security, the truth of the matter Madam Speaker is that Caymanians have a relatively higher propensity to spend. That means, a huge percentage of the income earned is not stashed away in a savings account, rather, it is re-circulated within the economy for the purchase of goods and services.
The fiscal and economic impact of this cost of living adjustment is therefore not isolated to the single line of “personnel cost” on the Government’s financials. Rather, economic analysis proves that an increase in worker take home pay will naturally lead to:
• An increase in Government revenue, from increased consumption;
• an increase in employment as a result of increased demand for services;
• a reduction in the demand for social benefits as families are able to afford more on their own;
• an increase in construction, as families are able to better qualify for mortgages or afford home improvements; and
• a highly effective means of dispersing economic stimulus.
Madam Speaker, there is a clear economic and moral case for providing some relief to Civil Service workers and I am proud to lead a Government that has managed the financial affairs of the country in such a manner as to be able to afford to do this in the 2015/16 financial year without significantly increasing the cost of running the Government.
Perhaps, the argument could be expanded to say that the Government, like the private sector, is subject to the same pressures of inflation, therefore, the ability to keep Government expenditures more or less constant is a result of increasing efficiency.
Notwithstanding the planned cost of living adjustment, the Government’s fiscal plan shows marked improvement in several key indicators of fiscal health within the public sector.
Our dedicated civil servants have gone far too long without pay increases their friends and colleagues have enjoyed over the years in the private sector. It is time for them to get their due.
As you know, Madam Speaker, this Strategic Policy Statement is the first step in preparing our annual budget. The main points of Government’s fiscal strategy are prudent fiscal management, facilitation of private sector economic growth, an educated and work-ready populace and development and modernization of Cayman’s infrastructure.
This Government remains dedicated to transparent and prudent fiscal management with the key objects of complying with ALL principles of the Framework for Fiscal Responsibility.
Madam Speaker, this Administration developed a set of Broad Outcomes early on in office to guide our work during this term. They are:
A strong, thriving and increasingly diverse economy;
A work-ready and globally competitive workforce;
A more secure community;
A more efficient, accessible and affordable public service;
Modern, smart infrastructures;
A fit and healthy population;
A centre of excellence in education;
A culture of good governance;
Sustainable developments in Cayman Brac and Little Cayman with sensitivity to the Islands’ unique characteristics;
Conservation of our biological diversity and ecologically sustainable development;
A robust agriculture sector suited to the needs and resources of the country; and
Equity and justice in a society that values the contributions of all.
A strong, thriving and increasingly diverse economy
Madam Speaker, we continue to find unique ways to diversify Cayman’s economy because we all know that our economic wealth drives every aspect of Cayman’s society. We have several ongoing and proposed construction projects and plans are on track for the cruise ship berthing facility, Owen Roberts International Airport terminal upgrades, George Town revitalization, East-West arterial road extension and the new solid waste management facility.
The Government will invest $5 million in the 2015/16 financial year toward its efforts to revitalize George Town and improve the experience for residents and visitors. This will include the provision of an enhanced transportation network that supports connectivity to major traffic arteries.
New employment is expected to be created directly and indirectly from these projects.
Other ways in which Government will implement a strong, thriving and increasingly diverse economy include an improvement to the public transport system, by completing public restrooms and introducing seating at the George Town Bus Depot and increasing taxi, tour and omnibus permits, and extending operating hours for taxi and omnibus operators. Madam Speaker, we have given 40 new taxi and 15 omnibus licenses to Caymanians, meaning we have taken increasing tourism numbers to create jobs; we’ve actually been able to deliver jobs into the economy.
We will also implement Regulatory Framework Enhancements for upcoming assessments and reviews by international standard-setting bodies; such as the IMF Financial Sector Assessment Program review in 2017.
Government will continue the preparatory work necessary for the fourth round of Mutual Evaluation in which the Cayman Islands’ Anti- Money Laundering/ Counter Terrorist Financing framework would be assessed for technical compliance with, and effective implementation of, international standards as set out in the revised Financial Action Task Force 40 Recommendations. The Cayman Islands fourth mutual evaluation is scheduled for the fourth quarter of 2017.
We also plan to encourage collaboration between the Cayman Islands Turtle Farm and other local attractions, with entities and entrepreneurs in the tourism industry such as tour bus companies, watersports companies and hotels to offer visitors packages thereby producing additional positive impact on the island’s economy and employment.
The Civil Aviation Authority of the Cayman Islands will continue to grow the CI Aircraft Registry, in what has become a very highly competitive global marketplace. The CAACI endeavors to build smart infrastructural systems to manage regulatory activities with e-initiatives, while maintaining financial self-sustainability and contributing to core Government revenues.
Government will implement a strategy for marketing new products that can be listed and traded on the Cayman Islands Stock Exchange locally and internationally, in particular, the new rules for shipping and mining companies.
We also plan to introduce a pilot programme offering VIP concierge services for business people to be fast-tracked through Immigration and Customs when they come into and leave the country.
A work-ready and globally competitive workforce
Madam Speaker, while we are doing all we can to help the private sector create jobs, we are also mindful that the employment issues in Cayman have to do with more than just the economic conditions of recent times. There is a growing feeling of dissatisfaction among many Caymanians about their treatment in the labour market. The hiring of capable and willing Caymanians and paying them a good and fair wage for work should not be a matter for debate.
Government knows we need to have a workforce skilled for employers’ demands. It’s crucial to not only Cayman’s economy, but in keeping unemployment as low as possible.
Through the Ministry of Education, Employment and Gender Affairs, the Government will take the role of a partner and facilitator in the training, development and employment of Caymanians who are actively seeking employment or career progression.
Initiatives planned in this regard include the development of legislation to underpin the National Workforce Development Agency, the implementation of a national apprenticeship programme, a national job link programme and the establishment of a national quality assurance framework for training institutions.
The Government’s strategic plan also includes additional financial incentives to attract and retain highly skilled teachers for our school system. The Honorable Minister with responsibility for Education and Employment will speak more about this in due course.
The Government will convert the hurricane shelter site on the Bluff in Cayman Brac into a new school campus in its efforts to improve educational facilities throughout the Islands.
Another measure this Government has undertaken is the opening of the long-awaited internationally accredited Cayman Islands School of Hospitality, which opened in September this year with 25 students. It is Government’s intention to increase that enrollment to 50.
Other actions Government will take to ensure a competitive workforce include improving the employability of unskilled or semi-skilled members of the workforce such as young parents, and recovering addicts by providing programmes that increase their job skills and literacy levels, prepare them for suitable careers, and provide therapeutic support as they transition into employment.
For further information contact: Bina Mani