INTRODUCTION

Madam Speaker, in a short while my colleague, the Minister for Finance and Economic Development, Honourable Marco Archer, will be bringing a Government Motion to seek the approval of this Honourable Legislative Assembly for temporary appropriations to permit the Government to incur expenditure during the period 1 July to 31 October 2013.

This interim budget is the first major fiscal policy action to be taken by this Administration and is being done under the provisions of Section 11(1) of the Public Management and Finance Law in a manner similar to that done by incoming Governments following the general elections in 2005 and 2009.

The intent of the interim budget is to permit the continued operations of the Government while allowing sufficient time for the Cabinet, in consultation with public sector agencies, to prepare a detailed budget for the full 2013/14 financial year.

During my lifetime, the Cayman Islands has experienced incredible economic, social and environmental change which has, for the most part, improved the average Caymanian’s standard of living.  These changes did not come easily and were the result of the hard work and incredible fortitude of the Caymanian men and women who had the drive, desire and discipline to improve these islands for future generations.

My Administration has an enormous task, to balance the need to provide a high quality of services to the people of the Cayman Islands while creating an environment supportive of continued long term, sustainable economic development for these islands.

LONDON MEETINGS WITH FCO

Madam Speaker, during the week of 11 June 2013, I led a delegation which included: the Minister for Finance and Economic Development, Honourable Marco Archer; Minister for Financial Services, Commerce and Environment, Honourable Wayne Panton; and Financial Secretary, Mr. Kenneth Jefferson – to the United Kingdom to meet with Minister Simmonds of the Foreign and Commonwealth Office to discuss budgetary matters and the fiscal challenges facing the Cayman Islands.

At that important meeting we engaged in dialogue and put forth our position regarding this Administration’s vision for improving the finances of the country.

My Administration agrees with the underlying policy principles of the Framework for Fiscal Responsibility (FFR) set out in the Public Management and Finance (Amendment) Law 2012, such as:

•          improving medium term planning;

•          delivering value for money;

•          more effective management of risks; and

•          improved accountability.

However, we believe that there is a significant need to review the four year financial plan agreed last year between the United Democratic Party Government and the Foreign and Commonwealth Office as part of the 2012/13 Budget approval. That Plan set very aggressive targets for reducing the level of Government’s operating expenditure and capital investment while simultaneously growing revenues at a rapid rate in order to achieve compliance with certain prescribed financial targets by the end of the 2015/16 financial year.

We believe that these targets are overly ambitious given the short timeframe set for compliance and have stifled the rebound in the Cayman economy. We believe that a more gradual, phased approach should be taken regarding the timeframe for compliance as the achievement of compliance must be balanced with the need for the Government to implement measures to stimulate sustainable economic growth and diversification.

In my opinion it makes absolutely no sense for the Government to go about improving its financial position while ignoring the economy.  This would put the livelihood of our people; education of our children; healthcare; infrastructure; personal safety and everything we enjoy today in great jeopardy.

During the discussions with the FCO, we notified them of our intentions to develop a revised medium term fiscal plan for the Cayman Islands and they have indicated their support of our actions in this area. This revised plan will be developed as part of the 2013/14 Budget process and presented to this Honourable House with the substantive 2013/14 Budget during the month of September.

POLICY INITIATIVES FOR 2013/14 BUDGET

In terms of reductions to Government’s operating expenditure and capital investments, these must be carefully planned, managed and monitored. The Government is currently a major player in the economy and if expenditure reductions are not managed carefully there could be significant negative shocks to the Cayman economy which can quickly compound and create recessionary pressures – something that we want to avoid as best we can and not to bring on ourselves.

The Foreign and Commonwealth Office has called for a quick reduction in the size of the Civil Service and the wider Public Service.  We have accepted that there is scope for some reduction but we cannot just cut the number of civil servants with the stroke of a pen – in order to meet some arbitrary target.  Any reduction must be managed so that we do not negatively impact services to the public or add to the social ills of the country. We have agreed to manage down the size of the Civil Service through natural attrition and strict review of all contract renewals. This is a policy that has been applied by the Honourable Deputy Governor over the past year and has stemmed the growth in the civil service.

Everyone needs to recognize that Public Servants play a critical role in the Cayman society by providing the services that many take for granted: they teach our children; treat us when we are sick; protect our borders; collect the trash; provide policing; provide vital air transportation; protect our environment; operate our Legal and Judicial systems; preserve our culture; take care of the most vulnerable among us; care for our elderly; manage our public finances; build and repair our roads; ensure that good governance systems and policies are in place; support and regulate businesses in all economic sectors; rescue and protect us from hazards.  These are but just a few services provided by Public Servants and the country depends on these.

We are going to be supporting the entire Public Service in its efforts to restructure and improve operational efficiencies while reducing operational costs.  Clear targets and timelines will be agreed along with regular monitoring and reporting of progress to Cabinet.

As we look for ways to reduce Government expenditure we will be critically examining the various Statutory Authorities and Government Owned Companies to see how best to improve the financial performance of this sector and achieve greater operational efficiencies.  We are not going to rule out possible divestment or restructuring of these entities but will make sure that any decisions in that regard will be done properly with transparency, consultation and appropriate analysis.

The management of public debt and achieving sustainable revenue flows are key elements of the Government’s long-term financial strategy.  We believe that our existing debt portfolio should be refinanced in a way that creates a clear path to pay down and extinguish debt in a structured and affordable manner.

Where possible and financially feasible we will implement a strategy to move away from interest-only bullet bond type borrowing instruments.

For any remaining non-amortizing debt we will establish a sinking fund to enable us to pay off those debts in full when they mature. Doing so will create a greater level of comfort and certainty in terms of the country’s ability to meet the debt obligations when they become due.

Revenue Measures implemented by the Government must be done in a manner that achieves the goal of generating cash for Government operations but also does not unnecessarily burden private society to the point where it discourages investment and economic growth. We stand behind the Cayman Model of taxation and do not support the introduction of: Income Tax; Payroll Tax; Property Tax or Value Added Tax.

Economic growth and diversification form a key part of the Government’s policy agenda, as we believe in creating an environment where business can flourish and generate the jobs needed to employ Caymanians. We must have an economy that allows each and every Caymanian the opportunity to obtain employment with an appropriate level of remuneration that they can support themselves and their families.

My Administration has a mandate to introduce minimum wage legislation and we will do so as soon as practicably possible.

Looking at the medium to long term, my Government has identified two critical and significant infrastructure development projects which need to be done as quickly as possible: the Grand Cayman Cruise Ship Berthing Facility and the Owen Roberts International Airport Redevelopment.

Both of these projects are crucially important to the continued viability of the very important tourism sector of our economy and will positively impact the wider Cayman economy in both the short and long term once implementation gets underway.

Recently the Government has been approached about the development of another major infrastructure project which would be structured as a public private partnership and if it comes to fruition will serve as a catalyst for economic development in the Eastern Districts of Grand Cayman.

The Cabinet is committed to following all due processes to ensure proper design, planning, financing, procurement and implementation of these projects to ensure that value for money is maximized and the desired economic outcomes are achieved.

POLICY INITIATIVES – 2013/14 INTERIM BUDGET

Looking at the short term, just yesterday the Cabinet approved a further 6 month extension on the import duty concession of 15% on imports of building materials to Grand Cayman and the 12.5 cents per gallon import duty concession on imports of motor gasoline to Cayman Brac. We believe that these measures help to reduce the cost of doing business and encourage economic activity by creating jobs and opportunities for our people.

This interim budget provides funding for the renewal of property insurance on the assets of core government and statutory authorities and government owned companies along with the renewal of the catastrophe risk insurance facility or CCRIF.  Last year the United Democratic Party Government made the decision to eliminate or significantly reduce these programs without implementing alternative risk transfer mechanisms.

My Administration has taken the decision to reinstate these protections as they are necessary to help safeguard the Country from the financial risks associated with the unpredictable loss or damage to our assets.  Let us not forget the lessons of Hurricane Ivan or Paloma many individuals and businesses are still dealing with the financial impact of these events and the current state of public finances with low cash reserves and prohibitions on borrowing does not leave much ability for the Government to deal with the aftermath of such events.

CONCLUSION

Madam Speaker, in today’s modern world, the prudent management of our finances is of great importance. We must find a way to ensure that future generations have the financial resources required for future development.

My Administration has taken up this challenge and as we develop the full budget for the 2013/14 financial year we face the enormous task of balancing the need to provide a high quality of services to the people of the Cayman Islands while creating an environment supportive for continued long term, sustainable economic development for these islands. We all have a responsibility to future generations to leave them a Cayman Islands that is better in all respects than we were handed by our forefathers.

Later today as we seek approval, for the interim budget I ask for the full support of all Honourable Members of the Legislative Assembly so that we can continue the operations of Government over the next four months during which time we will prepare a revised medium term fiscal plan and the detailed budget for the 2013/14 financial year.

Thank you Madam Speaker.