August 26th, 2023
Last week, the Government issued its June 30, 2023, financial results. These financials raise serious questions. The Premier’s recent warning memo to his Government requesting spending cuts has increased those concerns. Here is why.
When presenting the budget in 2021, the Government initially projected revenues of $978 million for 2023. When the Premier presented the Strategic Policy Statement back in April, he increased the revenue forecast for this year to $1.037 billion. An increase of $59 million that the Government hopes it will receive.
The six-month financials indicate that at the half year, with a majority of government income already banked, only $27 million in extra revenue has been received. That leaves a whopping $32 million more that will be needed for Government to meet the Premier’s new revenue target.
The Government’s own June financial report recognised this risk in its conclusion.
“Revenues must exceed the… $978.1 million for Core Government set out in the original budget for 2023 if it is to reach the revised level of $1.037 billion that was shown in the Strategic Policy Statement for 2023.”
I agree with that warning.
But I would go further and say that the Government’s ability to hit the Premier’s revised revenue target must be called into question.
Let me explain.
As I said earlier, with more than half of the expected revenue already collected this year, the Government hopes to pull in an extra $32 million to meet a revenue target of $1.037 billion. That is a tall ask when revenues are at their lowest during the second half of the year.
$32 million in extra revenue is therefore unlikely, so there must be considerable doubt whether the revised revenue figure, presented in April, can be achieved. The Premier must know this.
If income targets are in danger of being missed, then this brings into focus the current level of Government spending.
A risk that Government may generate insufficient revenue is likely the reason the Premier is now concerned with spending and why he is now asking that spending be reduced by almost $50 million over the remainder of the year.
Ministers must now exercise the restraint being asked of them by Premier Panton. The Government must avoid any deficit risk or falling afoul of the Framework for Fiscal Responsibility.
Let us dig deeper – the Government’s latest figures suggest that growth in a key part of the economy is slowing.
Last year, the Government boasted of significant surplus income from property and construction activity, making government finances more buoyant. Construction is known to be the third pillar of our economy.
The Progressives have warned for months of an apparent slowdown in the sector.
The half-year financials show that stamp duties on property are some $15m lower than in the same period in 2022. This decrease suggests that property transactions have slowed considerably in the last year.
At the same time, building permit fees are only one-third of the expected level and are lower than in 2022.
Planning fees are also significantly below budget. This suggests that there are fewer projects in the construction pipeline.
It is worth noting that the Government has published no quarterly economic data for nearly a year now. The last published figures relate to the first quarter of 2022 and were released in September 2022. What has been happening in the economy since, and how should the country and the Government respond? These are vital questions that need an answer. The lack of published data is a real cause for concern for a government that trumpets a commitment to transparency and evidenced-based decisions.
With question marks over the state of government finances and concerns over a large part of Cayman’s economic prospects, the Government must take a long, hard look at its budget for 2024-25 that it will bring to Parliament before the end of the year.
We have repeatedly warned the Government of the need to prioritise their spending. We have said that every Minister will not be able to get everything they want to see done. The Premier typically ignored our pleas and put it down to politicking on our part.
It was not politicking. It was advice from our experience leading and governing through two challenging terms.
The Opposition has consistently argued that the priority for spending needs to be support for Caymanians facing the cost-of-living crisis. Ministers seem more concerned about pursuing their pet projects. That must stop. There will be hard choices that have to be made. The Premier now seems to understand that, given his recent memo.
As the Opposition, we cannot access the latest data and forecasts that Ministers will have seen. Yet it is clear to us that there is a need for restraint and responsibility as Ministers draw up their new budget plans.
Having been in Government before, we also understand that the current spending levels would have been known to the Premier and the Government.
The Government can exceed its approved budget in two ways – by use of Section 11 or Section 12 of the Public Management and Finance Act.
In other words, the Premier should not have been surprised by increased spending that had to be agreed first in Cabinet. However, he will not be sure until the year-end whether the Government will meet his revised revenue target. It is this possibility of missing his revised target for revenue that, I believe, is where the Premier’s concern truly lies. That concern is why he needs to rein in spending.
To cut close to $50 million in spending over the last four months of 2023 is a huge task. To achieve this, the PACT Government must show an unusual unity of purpose and collective restraint.
Despite the huge ask, I do pray that the Premier can make it happen. The country does not need to enter a new budget period with concerns about a possible budget deficit for this year.
When the Premier returns from overseas, I trust that he will be well rested and prepared to roll up his shirt sleeves to bring his Ministers together and make the hard decisions he now recognises need to be made. A more fundamental review of the Government’s spending and budget plans will undoubtedly be required.
We hope that the Premier, as Minister of Finance, is prepared to challenge his colleagues’ spending plans so that he can resolve his immediate problem with the 2023 finances and bring to the House a 2024/2025 budget based on a firm understanding of the current financial picture and a realistic assessment of Cayman’s future economic and financial prospects.
Thank you. May God continue to bless these beautiful Cayman Islands.
