PACT took ‘heat’ for social spending, Panton says – Cayman Islands Headline News

(CNS): Premier Wayne Panton has admitted that the PACT Government “took heat” from both sides of the political landscape for using public cash to help people navigate the cost of living crisis. While overspending will put the economy and the country’s fiscal independence at risk, tough decisions have had to be made to help people through this period of global inflation, he said.

During his latest public address to the country, which was delivered at the annual Chamber of Commerce Legislative Luncheon last week, Panton said the government had helped address the cost of living crisis by introducing a number of initiatives, such as free school meals and subsidising light bills. But he warned that public spending will need to be managed in future because public expenses are outpacing the growth in revenue.

“To help see our families through these tough times, we’ve taken a lot of political heat,” he said. “Those to our political right worry that we’re going too far and that irresponsible social spending will only further the sense of entitlement, and that this fiscal irresponsibility will put our fragile economy at risk. And those to our political left say that we are not going far enough with our social spending, that we should provide more assistance to more people and for a longer period of time.”

He said it was important to find balance neither too far to the left nor to the right. “Governments should not be prone to extremes. Our leadership needs to be pragmatic, future-focused and capable of balancing the competing interests while maintaining fiscal prudence.” He said that PACT was achieving this.

The premier said it was remarkable that the government had maintained a balanced budget with a significant surplus over the last couple of years, given that this was in the wake of the pandemic and during global turmoil.

While public spending is increasing, operating revenues have grown steadily from $862 million in 2019 to $1.02 billion. For the first five months of 2023, operating revenues amounted to $589 million, which is already more than half of the projected total of 2023 revenues, which is $1.03 billion. During the same five months, the government has spent around $415 million, so is still on track for another surplus.

However, as expenses are increasing at a faster pace than revenues, this unsustainable position will need to be addressed in future.

As well as an increase in social welfare spending, the government is facing a growing bill for the civil service, where the headcount has increased from 3,918 in 2018 to 4,511 by the end of May 2023, an increase of 15% in five years. With that in mind, the government is currently working on the 2024/25 budget, which will be presented in late October, he said.

“But the process to get there will involve hard decisions as it is expected that expenditure requests will not be met by existing revenue projections,” he warned.

While the rest of the Caribbean is largely characterised by volatility in growth, high unemployment and disappointing human development indicators, Cayman has consistently shown strong and stable positive growth. “International business is thriving,” Panton said. “Hotels are full again; shops and restaurants are bustling; and jobs are available up and down the economic ladder.”

Based on the first five months of this year, the government is optimistic about its overall performance for 2023. However, given the trend, costs will have to be diligently monitored over the rest of the year and the SPS period of 2024-2026, Panton said.

The unaudited results for January to May 2023 show a $174 million surplus, with $557 million of coercive revenue already collected. This is around $7 million more than during the same period last year and included $10 million more than expected through tourism revenues.

Nevertheless, tourism remains a very small contributor to the government’s overall revenue, in light of the investment and support given to this sector. And while the government had little choice but to support workers in the tourism sector whose income stopped during the pandemic, this stipend generated much of the criticism relating to welfare costs.

Tourism-related revenue is low on the list of the main sources of government income (See graphic below). Most public revenue comes from financial services, imports and stamp duty. Work permits and other immigration-related fees are also now outpacing tourism sector revenues.

Well over 40% of the government’s annual direct revenue comes from financial services which the premier said is “critical to our prosperity”. So far this year, the government has also taken in $6 million more than expected in work permit fees, as the number of expatriates working here steadily increases.