Financial year change coming
Marco Archer, Minister of Finance & Economic Development in the LA
(CNS): The government’s financial year will be switching to align with the calendar year when the expected amendments to the Public Management and Finance Law (PMFL) are passed next month, paving the way for an 18-month budget next year and multiple-year budgets in future. The Cayman Islands government believes the change will make the budget process more efficient but the move is also a political one as it will mean that the budget process does not take place in the immediate wake of a general election, which takes place in May.
The alternative option to achieve this, which is to change the month when the election takes place, has not worked out because politicians from the various parties could not agree on whether to increase or decrease the term of an administration.
The plans for the change in the financial year and the provision for multiple-year accounting were first raised by Finance Minister Marco Archer soon after the PPM was elected to office and is supported by the premier. The change to multi-year budgeting is also expected to reduce the amount of time spent by senior civil servants on the government’s annual spending plans.
McLaughlin previously described the change as “making sense” because it also aligns with the revenue collection cycle. Around 40% of government revenue is collected in fees from the financial services sector at the beginning of the calendar year, but with the budget cycle running from July to July, government has to wait almost nine months before it sees how much the main contributor to the public purse has actually generated.
Consequently, if things are not going as well as hoped, it is too late for the government to take any action to address the problem — either a cut in spending or a new tax — as there would not be enough time left in the year to make an impact, the premier has explained.
In order to make the transition, the law has been amended to deal specifically with next year’s budget cycle by changing the term ‘financial year’ to an 18-month period, to run from 1 July 2016 to 31 December 2017.
After the general election in May 2017, the next administration will then have six months to prepare its spending package, which could be for multiple years. However, the new law will require the new government to present its strategic policy statement within three months of the election.
In the past Cayman Islands general elections were held in November but the arrival and impact of Hurricane Ivan in September 2004 led to the postponement of the scheduled election that year to May 2005 and an additional six months in office for the UDP administration, which was in power at the time.
Since then, politicians have not been able to agree on a cut or an extension to any of the administrations in order to adjust the election cycle back to November. The finance minister has therefore woven the calendar year change into the plans for multiple-year budgeting.
The changes to the PMFL have now been made public ahead of the government’s planned Legislative Assembly meeting next month. It is one of a number of pieces of legislation that the government is hoping to steer through parliament next month.
We need to be careful about this for a couple reasons:
1. This is going to reduce accountability in the Legislative Assembly and is a significant retrograde step in the financial maturity of the country. At the moment, the Government gets a 12 month budget approved in June, then spend the following 12 months amending it in Cabinet under section 11(5) of the Public Management and Finance Law.
Sometimes it takes up to 5 years before these changes are every brought the Legislative Assembly for scrutiny or accountability. If they can’t plan for 12 months into the future correctly, how in this world are they going to be able to plan 24?
The truth is, they won’t, they’ll just approve one spending plan in the LA, change it multiple times in Cabinet, and by the time you find out about it, the next election would have passed.
2. This will mean that the Government will only face two sessions of Finance Committee in each administration. Finance Committee is where MLAs are able to advocate for the interests of their constituents and also reveal underhanded practices and maladministration. I guess an already easy Legislative Calendar requiring participation a handful of times each year will now get even lighter.
3. At the moment, the audit firms audit the accounts at a relatively reasonable rate as it is their down time (busy period from January through April) and it allows them to cover staff costs with otherwise available resources. When the audit period falls in the period when the accounting firms are busiest (the start of each calendar year) you are going to see the audit fees skyrocket as they will have to justify opportunity cost of pulling resources from servicing their offshore clients.
4. The accounting standards (IPSAS) requires a comparison between the budget and the actual for each year, how are they going to show/split the 24 months budget for comparative purposes? will it be left to the accountants to tell us after the fact what portion they intended to be in the first 12 and what portion in the later 12?
5. With a 12 month budget, there is some urgency to get the programs and plans going or completed before you lose the budget vote at the end of the budget year. Now when an items is approved and people realize they have 2 years to action it, you are going to find that Government will start to move even slower than they do now.
We are changing the fiscal year because no administration wants to cut their time short, and the opposition will not consent to an extension period for the current administration.
Here’s a novel idea, since we do not know who the 2017 – 2021 administration is going to be, why not simply agree that the next administration/government will have a term of 4 years and 6 months to shift the election date back to November. After the election, to the victor goes the spoils.
Since we don’t know who will be successful, no one should really squeal about it as it could potentially be their Government that gets the extended period. To me, that is a much simpler solution than changing the fiscal year and all the mess that is going to cause.
A good idea. Do it. Then pass a law that you can only spend money if it has been specifically appropriated by the legislature.
What a friggin’ mess this gonna be….
Why do the fees from the financial services sector all have to be collected at one time rather than throughout the year at the anniversary of the companies’ incorporations or whatever else the arrangements are?