(CNS Business): Although the local business community appears to be willing to swallow the latest round of fee increases to avoid the imposition of direct taxation, the private sector, and in particular the offshore industry, is putting increasing pressure on government to make serious cuts in public spending. While the premier has refused to cut jobs from the civil service, Cayman Finance chair Richard Coles says that government must face the music and begin a long-term plan to reduce the size of its administrative arm. While he acknowledged that there was no choice but to raise fees to deal with the current crisis, he warned government about squeezing the industry too hard in future.

Coles said that despite the warning signs government had failed “to grasp the nettle” in terms of setting out plans to hone down the public sector.

Speaking during the Generation Now discussion on the budget crisis last Wednesday, the chair of the body which represents Cayman’s offshore financial industry said what had happened was inevitable, as he called for a planned approach to serious expenditure cuts over the long term.

Cutting salaries or axing headcount overnight was not the way forward, the Cayman Finance chair acknowledged, but there needed to be a phased reduction in which those local civil servants who would lose their jobs were absorbed into the private sector and the size of government gradually scaled down.

Cayman Finance joins the Cayman Islands Chamber of Commerce, the Cayman Islands Tourism Association, Cayman Islands Real Estate Brokers Association (CIREBA) and many other private sector bodies that want to see government look more closely at the other side of the balance sheet.

Following the premier's proposal on 25 July to introduce direct taxation to the Cayman Islands, which sparked deep concern across the community, representatives from the business community rallied to offer alternatives. However, the private sector is increasing its pressure on government to make cuts, warning that the growing cost of doing business could eventually undermine the jurisdiction’s ability to compete on the international stage. While government may lack the political will to make the cuts, the business community now believes there is no other option.

Coles said that whenever cuts were proposed in any organisation people argue that the quality of service goes down, but he said that was not necessarily so if the cuts were planned and well thought out.

“We need a plan for the future to make these cuts. We can't have knee jerk reactions. As soon as government has dealt with this budget they should be looking to the next, rather than facing a last minute situation. They need to start thinking about a long term strategic plan to cut and where to cut that would do the least damage,” Coles said.

As it was now far too late in the day to make real cuts to balance this budget, he said, it was inevitable that government would need to raise additional revenue from the private sector. But he warned that there was a limit on how far the business community could continue to fund government spending.

“Our industry is going to bear the brunt but government must be careful of how much it squeezes the industry because if it squeezes too hard it might kill it,” Coles said, as he urged government not to overload the sector even though in the short term it would have to bear the greatest burden.

Relieved that government had dropped the idea of a direct tax on foreign worker’s earnings, he said he believed the indirect tax system had served Cayman well, notwithstanding the current problems. “The rest of the world is crippled by direct taxation at the moment and drowning under a sea of tax codes that people can't even understand. I am very happy that our first stab at direct taxation is now off the table,” he added.

Coles said government should look closely at the recommendations of the Miller-Shaw report, which it had commissioned in 2009, and the possibilities for privatizing public sector functions.

He denied that privatizing services would necessarily make them more expensive as raising fees was not the only road to profit. Although he admitted business is certainly driven by profit, he said the private sector can often do things “more efficiently” than the public sector, which leads to costs savings.