The Premier and Finance Minister, the Hon. McKeeva Bush, OBE, JP, presented his second budget on Friday (10 June) evening with only be one new revenue measure, which will be on the hedge fund industry - and no external borrowing.
(Media-Newswire.com) - The Premier and Finance Minister, the Hon. McKeeva Bush, OBE, JP, presented his second budget on Friday ( 10 June ) evening with only be 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.
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 doll
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