Opposition party proposals to spread the Cayman Islands’ budget deficit over the next three to four years are based on a risky assumption, according to Premier McKeeva Bush.

That assumption, basically, is that the United Kingdom will give its overseas territory a break.

“The PPM (People’s Progressive Movement) would have us build a budget based on the belief that the UK government is going to say ‘yes’ to the change,” Premier Bush said at a Tuesday night public meeting in George Town.

The “change” referenced by Mr. Bush means that the UK’s Foreign and Commonwealth Office would agree to relax restrictions set on the amount the Cayman Islands can borrow and how much the Islands can pay toward that debt each year. 

Currently, Cayman can only pay off its public sector debt at the rate of 10 percent of core government revenues. So if Cayman has $500 million revenues, it can only pay up to $50 million in that year toward its debts.

The idea behind the restrictions contained in the country’s Public Management and Finance Law is to make sure Cayman doesn’t get itself into a debt spiral, continuously borrowing more money that it eventually will not be able to pay off.

As an overseas territory, Cayman has to stay within the six principles of responsible financial management or the UK can act to restrict its territory’s borrowing capacity.

Opposition party members have previously proposed increasing the 10 per cent debt payment ceiling.

Mr. Bush said he would discuss matters with the UK when he meets with the foreign office next month.

However, the Premier said Cayman couldn’t be naïve going into those talks.

“My government does not have any evidence before it to indicate the UK government’s willingness to deviate from the requirements of the (Public Management and Finance) Law,” Mr. Bush said. “In the preparation of the present budget, the government received six different letters from the FCO (Foreign and Commonwealth Office). Not one of those six letters gave any hint that the UK government would entertain a deviation from the law.”

In fact, UK Parliamentary Undersecretary of State Chris Bryant has consistently urged Cayman to adopt a more predictable revenue stream – i.e. property and/or income taxes – to ensure it can meet its obligations.

“Don’t come now and make believe that the UK is all ready to give us three or four years of deficits,” Mr. Bush said. “If we agree on income tax or property tax, they might allow us to spread the deficit over two or three years.”

“But again that is if we introduce those taxes. Is that what the PPM want?”

Opposition Leader Kurt Tibbetts has said that his party would not support direct taxation in the Cayman Islands.

In that case, Mr. Bush said, “the evidence is not there to support the PPM’s position.”

The government ended the last financial year with an operational deficit of CI $81.1 million. This year, that gap could become even larger unless the government can sell certain assets to help balance the books.

Mr. Bush said, by law, the government is required to produce a balanced budget each year – which means the spending plan must contain adequate revenues to meet its expenses.

“They (the opposition party) expect my government to present a budget to the house on this blind – or good faith – belief. The government does not agree to that approach.

“We must not be naïve enough to believe that the UK government is bound to our request to say ‘yes’ for our deficit simply because the UK government at the moment practices deficit spending.”

The government expects to present its budget to the Cayman Islands Legislative Assembly on 30 April.