Revised Cayman Budget Approved

By Editorial 31 August, 2012

The United Kingdom government has endorsed the revised Cayman budget for 2012/13 but has restricted the size of a second overdraft facility to limit Cayman borrowing.

The latest budget is the result of a second revision of budget proposals from the Cayman government, which was instructed to rewrite its initial budget plans earlier this year after the UK government blocked the territory from increasing borrowing to service the islands' recurring budget deficits. A second draft of the budget was drawn up in early August, but this draft was promptly abandoned after an outcry from the local financial industry regarding a proposal to introduce a direct tax on expatriate workers' income.

While the third budget has now been approved by the UK government, the fiscal adjustment contained within the draft is less ambitious. The latest draft, which contains no direct tax proposals, envisages a USD25m shortfall during the first few months of 2013, and the government is seeking a second temporary overdraft facility to prop up revenues during this period.

However, in agreeing the revised budget - which contains hikes to work permit fees, an increase to the accommodation tax, financial services fees, and a new levy on vessels over 30 feet - the UK government has said that it would grant a second overdraft facility of just USD15m, USD10m less than requested.

The overdraft facilities, with a combined value of USD81m, are being provided in recognition of the cyclical nature of Cayman revenues from the financial services industry. At the request of the UK's Foreign and Commonwealth Office, the Cayman Islands will be required to establish a 'Budget Delivery Board' to ensure that it achieves a budgetary surplus, as well as the repayment of the two credit facilities to the UK government by January 31, 2013, and June 30, 2013.

Tags: Expatriates | Tax | Investment | Fiscal Policy | Law | Banking | International Financial Centres (IFC) | Budget | Cayman Islands | United Kingdom | Fees | Offshore | Tax Reform | Services |


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