By Gordon Barlow

We in Cayman are faced with two government financial crises, related but separate. The first is a shortage of cash in the bank: the second is a budget deficit.

The cash-shortage can be fixed by either borrowings or quick sales of assets, or both. The budget deficits can be fixed by either increasing public revenue or reducing public expenditure, or both.

In a nutshell, the situation is this. When a year’s public revenue and public expenditure are in balance at say $600 million each, no problem. (It would always be prudent to squirrel a few millions away for a rainy day, but it’s not in politicians’ nature to do that.) But public revenue in the current fiscal year ending next June is now expected to be about $500 million, while public expenditure was budgeted to be $600 million. What to do?

Borrowing is a quick fix, but there is a sting in the tail. Loans have to be repaid out of future revenues, and where will that money come from? Selling assets sounds easy, but we’re not in a sellers’ market at the moment. If you’re in a hurry, you can’t get the price you want. Most government assets are poorly managed and would be profitable only under private management – if then. But most government operations are overcapitalised, and their sale proceeds mightn’t be anywhere near book values.

Extra taxes increase public revenue, and can help fix a short-term cash shortage. But they are very unpopular, and have a nasty history of hanging around for generations after the original crisis is over.

Often, closing down government ventures is the best option. At least that stops the bleeding – provided the employees can be found new jobs elsewhere. The Civil Service Association is determined that none of its members will be laid off. Cabinet has promised that nobody will be laid off. Wishful thinking, I’m afraid.


More money than sense

Actually, public revenue may well fall below even the revised projection of $500 million. Tourism is weak, offshore business is weaker. A swine-flu scare might hit tourism numbers even more that the US recession does. An OECD decision to kill off our tax-haven once and for all would drastically reduce business visitors and the fees-income relating to offshore companies.

However, tax havens don’t die overnight. The flow of new business is cut as soon as clients’ confidence is lost, but existing business falls away only gradually, by attrition. Imagine a bath whose water-level is continuously raised by a running tap. When the tap is turned off, the water in the bath gradually seeps away. The plug is never snug enough, is it?

Anyway, whether our public revenue in this current fiscal year will be $500 million or much less, we are going to have to ask our MLAs to slash expenses.

Our fifteen elected MLAs (soon to be eighteen – more empire-building, God help us) will have little scope in their current term to indulge themselves in vanity projects. Instead, they have the opportunity to gain some respect by culling the present civil service empire of existing vanity projects. A return to “core government” ought to earn each MLA a statue in Heroes Square. It’s that important.

The years of madness are over and will never return. We can no longer afford to allow (much less to encourage) our local rulers to spend money like drunken sailors. They – and we – had more money than sense. Now, the money’s gone; let’s see how much sense we have left. Let’s get rid of what we don’t truly need. Let’s try living within our means.


Bells and whistles

We own and operate a state airline, with all its bells and whistles, in defiance of common sense and financial prudence. We don’t know how much it costs (that’s a state secret), but it must be at least $3,000 per registered voter each year. If we are ever to achieve a sustained balance of our government budget in the new economic circumstances, the airline must be sold or closed down.

Will our rulers have the guts to do that? Will we have the sense to let them do it?

Does it make sense for us to keep pouring money into our state-run tourism attractions and marketing programs?

Those vanity projects probably cost $5,000 per registered voter each year; if they were privately run, they would cost the voters next to nothing. The state’s duty is simply to ensure the local infrastructure can support a tourism industry. That’s all. We’re not communists; we don’t need to own and operate.

Our state radio could be sold or closed down; our government goat-counting programme could be out-sourced to Junior Achievement. State sponsorship of sports and entertainment festivals could be cancelled. The hundreds (thousands?) of state-owned cars could be sold to their drivers, and the state’s repair shop shut down. We’re not communists; did I say that?

The state’s University College could and should be given to its private-sector rival. The state-owned business-advisory unit (the Investment Bureau) could and should be closed down; let the Chamber of Commerce do the job.

All state-owned buildings could and should be sold to private investors (and rented back) or leased to private-sector property managers. We don’t need a government property empire, to go with all the other empires.

We can scramble out of this present mess if we can restrain our elected rulers’ self-indulgences. But not otherwise.