Budget forecasts can improve, Jefferson admits
(CNS): Government’s tendency to underestimate how much revenue it expects to collect is the result of “human nature” and a deliberate desire on the part of successive administrations in recent years to avoid the risk of a deficit and to take a conservative approach to spending ahead of the budget, only to spend the extra cash later. Financial Secretary Kenneth Jefferson has said that there is room for budget forecasting to improve and remove the need for the supplementary appropriations government makes every year.
Appearing before the Public Accounts Committee on Wednesday, Jefferson revealed that government had underestimated the revenue it would collect during the first four months of this year by around CI$20 million. Over CI$509 million in revenue had already come into the government coffers by 30 April, a 4% increase on expectations, which had been less than CI$490 million, he revealed.
Over the last few years, with the exception of 2020 when the COVID-19 pandemic upended all budget forecasts, actual government revenue has been much greater than generally predicted in the budget. Jefferson said that while this produces welcome surpluses, it also leads to additional expenditure and the requirement for Parliament to approve significant supplementary appropriations each year.
The issue has been raised by the Office of the Auditor General on a number of occasions. As the committee reviewed the OAG’s recent follow-up on its previous recommendations and the subsequent PAC reports about public finances, Jefferson outlined some of the issues that impact the revenue forecasting.
He said that the Revenue Unit has only one employee but there are plans to recruit two more people by the end of the year. Over the years, that one individual in the unit has liaised with all of the necessary government agencies that collect cash, such as Customs, CIMA and the General Registry. While admitting that this communication and information on which the forecast is then calculated might not always be documented, the financial secretary said it does take place.
Jefferson said he understood the point made by auditors that the budgets have looked understated when compared to end-of-year actuals. “We fully understand what that then leads to,” he said, noting the need to match the spending to the revenue. He accepted that if the revenue predictions were more realistic, expenditures could be higher while still having a surplus and avoiding the need “for quite a few rounds of supplementary expenditures”.
“We do admit that is a valid point that the audit office has made in the past,” he said. “There is a great need that the revenue estimation gets better and better,” he said, as he committed to making improvements by increasing the staff and using more accurate data and better technology.
Jefferson said that the revenue budgeting came down to human nature. “Individuals prefer to exceed their budget predictions when it comes to revenues as opposed to falling short,” he said, explaining why budgeted revenues have consistently been less than actual revenue. “Over the years governments… have tended to be conservative, and deliberately wanted to be conservative, in their revenue estimation,” he said, adding that this was driven by concerns that something might go wrong.
Jefferson pointed out that revenue is rising. In 2019, the last pre-COVID year, government earned CI$428 million in the first four months, which is about CI$81 million less than it has earned this year. He said much of the increase was due to the new directors fee, which has been something of a windfall.
See more of the PAC proceedings on CIVGTV below:
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Category: Government Finance, Government oversight, Politics
Why in these days of the new political arrangements do we still have a Financial Secretary? Someone told me it was put in the Constitution reform “ there shall be a Financial Secretary” just to protect Ken Jefferson. But that surely could not be true. Right?
Because someone has to be in charge of the money, and the people and politicians did not trust a politician to be Minister of Money. So it got left as the Financial Secretary. Checks, and balances.
Revenue section of CIG has one employee. So he has been the Financial Secratary for how long now? Did he need PAC and Audit to tell him that as top finance post within CIG it is probably your responsibility to look after CIG revenue stream? That shuould include strategy, operation, execution and yes sufficent capabilities and staffing… lack of accountability here is on par with everey other aspect of that job be it reporting, budget, duty waivers… #WorldClass like rest of CIG
He and his very close buddy the incompetent, now thankfully retired, lady who was more into hiring Adventists for her department than getting on board with government reforms of finance are a huge huge part of the problem we face today. They did nothing to cooperate because, in the case of the lady, the intellect was just not there. But, as usual, the blame is placed anywhere other than themselves.
The Financial services industry is Cayman’s oil
Correct.
…..while it is still around…CIMA doing their best to kill it off with regulatory over reach, bureaucracy and unnecessary cost and administrative burdens….not at all proportionate.
How so? Asking for a friend.
To the thumbs down responders, do you mean thumbs down for CIMA or for the posters point? If the latter, what industry do you work in? Sure isn’t financial services.
What industry do you work in? And be specific?
Revenue is not a CIG problem Cayman is very fortunate.
The key problems for CIG in the civil service includes gross mismanagement at various levels, maladministration, public malfeasance, zero accountability, nepotism, systemic corruption and abuse of office by senior officials who know nothing will happen if they mess up or waste public funds. Look at all the recent examples in the press OBE’s awarded to individuals that cause CIG to get sued and settle pending legal matters. Another is the efforts made to protect certain Chief Officers at all costs despite a clear track record of incompetence over the years. It is clear that the system particularly the DG protects the special few and those that help the friends in the private sector to make money. In turn, they disperse favors and potential opportunities for some civil servants to earn additional funds in services and projects. Corruption takes various forms.
Cayman is on the brink of becoming the next BVI or TCI because of the lack of accountability and transparency within the civil service at the highest levels. UK better start paying closer attention to the mismanagement of CIG.
I don’t know how any government can let certain individuals or groups continually enrich themselves ……………. unless they are part of the action!
Why would a surplus “lead to additional expenditure”? Why not put aside the surplus for a reduced revenue year or pay off debt or add it to the apparently underfunded government pension pool?
The civil servants should address the underfunded government pension pool from their compensation packages. Why should we taxpayers foot the bill?
@10:40 because what you suggest is the responsible thing to do and those we elect over and over are irresponsible and incapable of managing money. You see, money wastage and handouts is their ticket to reflection success.
…”Jefferson said that while this produces welcome surpluses, it also leads to additional expenditure…”
Why? Got it so must spend it?
I’m sure there will be comments about how the Government works for budgeting and spending purposes, but there is obviously little to no control over spending, and it’s “we’ve got it so we’ll spend it.”
How about reducing debt further or establishing a Sovereign Wealth Fund, or heaven forbid, both?
Cayman Sovereign Wealth Fund should be established and, if handled correctly and competently, should be beneficial.
“Revenue Unit has only one employee”
But they’re going to add a couple. That will help take care of that pesky surplus.
I think their logic is more along the lines of “One Revenue Unit employee brings in $1 billion in revenue….”
To all the people who keep saying we need direct taxation in one shape or form, ask yourself, how many staff in other countries’ ‘Revenue Unit’?