Commentary

Former Government Leaders Criticise the 2001 Budget

From left: Ms JulianaO'Connor-Connolly, Mr. Truman Bodden, Mr. Tom Jefferson
and Mr. John McLean.

Former Leader of Government Business, Mr.Truman Bodden, Former Ministers of Government Mr. Tom Jeffersonand Mr. John McLean and Sitting Member of the Legislative Assemblyfor Cayman Brac and Little Cayman, Ms. Juliana O'Connor Connollyissued the following Press Release:

A summary of the details is as follows:

SUMMARY

1. "...WE WILL NOT ADD MORE TAXES TOTHE OLD AREAS..."Hon. Kurt Tibbetts - 28th November Compass.The $27.4 million taxes by his new Government makes this now anuntruth.

2. New $27.4 million tax increase hit childrenand the average Caymanian - will definitely push Cayman into economicrecession and hurt Caymanians.

3. New Government put duty on food - lastGovernment took duty off food.

4. New Government spending increased by$41 million.

5. New Government is borrowing $55 millionin one year (more than 8 years borrowing by the last Government)- by nearly doubling total debt to $149 million.

6. 1992 debt was CI$57.1 million ($40.4million plus $16.7 million CAL loan) - 2000 total debt is $93.7million - or only $36.6 million for 8 years or an average of $4.6million per year.

7. New Government unrealistically increasedrevenue by $39 million over year 2000 - Financial Secretary predicts3% growth, which equals $8.16 million budget increase over actual2000.

8. Unprecedented $30.92 new borrowing forrecurrent spending - new Government not living within means andbreak White Paper and UK Government borrowing guidelines.

9. Hon. Kurt Tibbetts reference to overseasmedical loans is not relevant to Government's cash and DeputyFinancial Secretary acknowledged this.

10. Cannot add overdraft to alleged Decemberdeficit of $10 million because overdraft is within the deficit.

11. Official accounts for September 2000show $6.7 million SURPLUS and 30 November new Government's accountsshow loss of only $0.4 million ($400,000) with Capital DevelopmentFund of $3.65 million equaling a surplus of $3.25
million.

12. Budget not fully transparent - eg. Silenton cost to repay new $55 million loan (which will make total loansexceed 10% of recurrent revenue - a dangerous situation).

13. Eight years recurrent surplus 1993 to2000 is $141.7 million. 1993 recurrent surplus $11.2 million,$13.9 million surplus 1994, $16.3 million surplus 1995, $23.8million surplus 1996, $20.1 million surplus 1997, $24.6 millionsurplus 1998, $24 million surplus 1999, $7.8 million surplus 30Sept 2000.

14. We left no deficit. The deficit is bythe new Government.

DETAILS

The recurrent expenditure together withthe Statutory expenditure and the contributions to the PublicService Pension Fund less the 1999 surplus of $8.4 million (ParagraphsB and C in the 2000 and 2001 accounts) in Year 2000 were $285.70million and have been increased in 2001 to a whopping $326.62million. This spending increase of $41 million is unrealisticand therefore the Honourable Kurt Tibbetts and his Governmenthave to inflict nearly $20 million of new taxes (and $27.2 millionfrom 2002 onwards) on the people and to borrow CI$55.47 millionin loans to cover the recurrent expenditure deficit and the proposedcapital expenditure of $28.2 million. Leader of Government Businessthe Honourable Kurt Tibbetts in the Compass on 28 November headlinessaid "We recognize that we cannot and we will not add moretaxes to the old areas which simply fall on the consumer, becausewe recognize that salaries are not rising in proportion to thecost of living" The $27.4 million new taxes by his new Governmentmakes this now an untruth.

$39 Million Increase over the Year 2000

The 2001 budget is seriously inflated asthe recurrent revenue received in the year 2000 was $272 millionand the Deputy Financial Secretary and the leader of Governmentbusiness (perhaps with some of his other Government ministers)has unrealistically increased this from $272.6 million to $311.9million or an increase of $39 million. The Financial Secretary'sbudget address prediction of 3% revenue growth is $8.16 million.With a possibly declining economy it is unrealistic to increaserevenue to this extent.

Sept 2000 surplus of $13,102,247

The last Government official accounts wesaw while in office were for 30 September 2000 signed by the AccountantGeneral which showed a surplus of $13,102,247 (before transferring$6.7 million for capital works) and the Government accounts producedby the new Government in the December Finance Committee for 30November 2000 showed an accumulated deficit of only $400,000 afterthe transfer of $7.4 million of recurrent revenue to the CapitalDevelopment Fund for capital works. That Fund as of 31 December2000 stood at $3.25 million, which the new Government is usingto pay for capital works in 2001. It therefore follows that thecountry was left in a surplus position of $3.25 million. The Septemberaccounts and 2001 official budget summary are attached.

When we left office in early November therewas no deficit.

Historic Borrowing for Recurrent Expenditure

The new Government is borrowing $30.92 millionto balance their recurrent budget. This has never happened inthe recent history of the Cayman Islands and has definitely neverhappened during the last eight years of the previous Government.The attached Government table shows that from 1993 to 2000 therewere recurrent surpluses of a whopping $141.7 million and thereforea contribution to capital of $141.7 million to pay for hospital,district, health clinics, schools, roads and other capital works$11.2 million surplus 1993, $13.9 million surplus 1994, $16.3million surplus 1995, $23.8 million surplus 1996, $20.1 millionsurplus 1997, $24.6 million surplus 1998, $24 million surplus1999, $7.8 million surplus 30 Sept 2000.

The Honourable Kurt Tibbetts' Governmentborrowing of $30.92 million for recurrent expenditure when similarlydone in other Islands is one of the causes for several countriesall over the Caribbean to ultimately go bankrupt. The new Governmentis not living within its means and it is now borrowing on futuregenerations to make up its deficit caused through their lack ofability to balance the budget. It is economically wrong.

Only $36.6 million debt increase for 8 years1992 - 2000

The debt for Government as at December 2000was $93.7 million and the new Government proposes to borrow $55million, which will nearly double the borrowings to $148.7 million.Strangely, as much as the new Government alleges transparency,the budget does not state what the total debt will be next year,and most importantly it does not state the amount of recurrentrevenue that will be needed to service principal and interest.The Budget states that it only took in year 2000 7.6% of recurrentrevenue (well under the 10% internationally accepted minimum rate)to service the present medium term (about 7 years debt will bejust about paid off). In the full eight years of the last Government'stenure, the total Government's debt only increased from $57.1million ($40.4 million plus CAL loan of $16.7 million) in 1992only $36.6 million for 8 years or $4.6 million borrowing increaseper annum during our 8 years in Government. The new Governmentis borrowing $55 million for 1 year.

White Paper breached

The Foreign and Commonwealth office andthe UK White Paper recommends prohibition of borrowing for recurrentexpenditure and only allows for "funding direct capital investmentprojects". Will the FCO allow or disallow the new Government's$30.92 million borrowing for recurrent expenditure?

Confusion

The leader of Government Business attemptsto smear the past Government has once again failed. In the budgetat page 10, Mr. Tibbetts has tried to add the accumulated deficitas at the end of the year 2000 (the past Government left a surpl
us as at 20 November 2000 of $3.25 million (deficit of $400,000plus $3.6 million of Capital Development Fund to be used by thenew Government in 2001). You cannot add the accumulated deficitto the bank overdraft because the bank overd
raft is within the deficit.

The outstanding payments of $5.6 millionas at 31 December 2000 is small to the payments due to Governmentfrom importers for import duty or for stamp duty and other mattersowing as at the end of the year. No big business has all its debtspaid up at one time nor does it have all money owing to it paidto it when it is due.

Overseas Medical loans to Caymaniansnot affect cash

The leader of Government Business in theCompass of 2 January 2001 at page 7 had to admit (after our statement)that the $17.2 million in advance in overseas medical advancesmade to Caymanians who were sick was made over many, many
years (not just during our Government's time) and does not affectthe cash position. This cash has already been paid to hospitalsand doctors overseas and does not affect the present or futurecash position.

How in the world can the Leader of GovernmentBusiness expect the public to believe that these matters as wellas the $6 million cost of living adjustment for 2000 (which wesee that the new Government is not paying the cost of living increaseto Civil Servants for 2001) could cause the new Government toput forward a budget which is a financial tragedy of borrowing$55 million and raising a historic $27.4 million in taxes in oneyear with duty on food necessities hurting children and the averageperson.

The new Government deficit as at 31 December2000 of $10.7 million would only need to be covered by a loanof $10.7 million. The remaining $64.3 million ($55 million newloans plus $20 million in taxes less $10.7 million deficit) isbeing spent by the new Government because of the Leader of GovernmentBusiness is not able to balance the budget.

Taxes hit children and average person

It is sad when we find that the taxes whichthe past Government took off over the past eight years on foodsuch as flavoured milk and ice cream eggs, fresh fruit, biscuits,rolls, buns, water are now being put on by the new Governmentand will hurt children and those less financially fortunate andCaymanian families as a whole.

At a time when the USA is reducing taxesto ease the economic recession, we find this new Government apparentlyso confused that they are increasing taxes, which will push theCayman Islands into economic recession.

In summary, the new Government's financialmadness of borrowing $55 million, imposing $27.4 million of taxesmainly on the less fortunate Caymanians and children, financiallywrongly inflating revenue in 2001 by $39 million increase to $311.9million, (the year 2000 it was only $272.5 million) spending $41million more than in Year 2000 and all financial trends show thatsince the new Government took over the economy they are pushingthe country into economic recession.

The increase of $41 million in recurrentexpenditure (referred to before) together with the capital expenditureof $28.2 million is one of the most financially alarming signalsto the people of this country. At the end of the day it is Caymaniansand residents and future generations who will pay back this $55million loan and who will bear the brunt of the $27.4 milliontaxes.

This is a slap in the face to the votersof this country who recently voted the new Government in on thebasis of no taxes.
The Leader of Government Business the Honourable Kurt Tibbettssaid in 20 November 2000 Compass "the country will soon knowthe quality of Government it has elected". The country nowknows that the new Government CAN DO a historic $55 million inloans and over $27.4 million in taxes which will hurt Caymaniansand residents and children and CANNOT DO a balanced budget".

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