Some major changes needed to sustain the Cayman Islands as a viable economy could be applied to the case of Bermuda.

That is according to Jim Miller, chair of the Miller Commission on Taxation, Fiscal Management & Regulation Reform in the Cayman Islands, which is based in Washington DC, who was speaking on a panel about offshore financial centres (OFCs) at the OffshoreAlert Financial Due Diligence Conference in Miami this week.

Mr. Miller talked to The Royal Gazette after the discussion about the review he has conducted on Cayman and similar issues faced by Bermuda.

Having been contacted by McKeeva Bush, Premier of the Cayman Islands, in November last year, to carry out a study into the islands' fiscal problems, he set about addressing the key concerns over revenue and expenses.

Meanwhile Bermuda has also experienced its own problems with increasing Government spending and a rising deficit.

"What struck us was the fact that the revenue had been a fairly constant and slowly increasing portion of GDP, but that spending had been moving in lockstep with revenue until the recent past when spending rose dramatically by several percentage points of GDP," he said of Cayman.

"So we looked at possibilities for raising revenue, we looked at a number of direct tax alternatives such as personal income tax, corporate income tax and payroll tax and we looked at some indirect taxes.

"But in the end we concluded it would not make sense to raise any of these taxes, for number one, the problem was spending, not revenue, and number two, there was a real question about whether raising any of these taxes would be worthwhile - that is would they would raise more revenue than they would cost the economy?"

His findings were that the Cayman government needed to get its own house in order first, to cut back on spending and refrain from implementing direct taxation.

"Our conclusions were that the government should do a number of things: one, it should get its books in order - its major accounts had not be audited for several years, number two, it should restrain spending, and the most flagrant increase in spending was that of payments to civil servants, that it should improve its database system, and it should not impose new direct taxes," he said.

"In the interim, until the economy recovers and the revenue grows again in the ways it has before, it should make up the difference by selling some assets, improving and reforming many of its ministries and authorities, so that they would be stand-alone rather than demand subsidies from the government."

Mr. Miller also looked at a number of options available to boost the country's economy, like extending its airport runway to take bigger planes and building a cruise ship berth.

"Finally we looked at the opportunities that exist there, some of which had already been talked about extensively, to improve the economy as a whole, and if there were private funds available to do these things, like lengthen the runway to accommodate tourists from Europe without having to stop in the Bahamas or even in Miami, to have a berth for cruise ships - right now the cruise ships come in and they have to offload passengers on little ferries to bring them to town, and they have an environmental problem of the trash facility that needs to be relocated.

"These are things that would expand the Cayman economy, increase GDP, and provide high level jobs for a lot of Caymanians, so those things which we recommended were expedited as well."

He said his perception of Bermuda was that it had a similar tax system, albeit with some differences, but what had surprised him most about the Cayman was the absence of a central budget.

"I was struck by the lack of control over the budget, there just isn't centralised control of [JUMP]<*t(0,0," ")>the budget as I have been accustomed to as the US budgets director," he said.

Before 1922 the US Government didn't have centralised budget authority but that changed as there was a review.

"In effect, it's very difficult for the parliament to have direct control over the budget as a result."

Mr. Miller also pointed to the issue of work permit term limits, with the Cayman proposing a 25-year term limit and Bermuda recently changing its policy with a 10-year term limit being introduced for international business workers.

"Each of the offshore financial centres need to be sensitive to the need for these financial institutions to hire Chartered Accountants and other professionals, to a degree to which they are not available among the citizens of the country," he said.

"If they are not allowed to bring these in it may cause them to relocate elsewhere or even if they don't relocate their operations won't be as efficient as they could be."