Other options to tax

| 30/07/2012

There is no need for any form of direct taxation, or any VAT or any other such measure either now or in the foreseeable future. What we as voters require, and what the UK also requires, is sustainable government spending. The most sustainable government financial system is one that limits expenditures. What is required is for government to eliminate waste, corruption and patronage. That may be hard for any politician whose core political constituency is based on these elements. 

Mr Miller made some very good suggestions Friday evening regarding both additional revenue sources and areas for possible expenditure cuts. He is to be commended. Perhaps some of our other highly paid politicians might now make equally clear suggestions for getting our finances out of the current mess, rather than just waiting their turn to board the gravy train.

Here are some areas of expenditure that I suggest can be cut. These are derived from the Government’s own June 2012 interim budget. I have merely annualized the expenses they published. See here

The government is currently subsidizing Cayman Airways to the amount of almost $2,000,000 per month. (See budget items CAL 1, CAL 2, and EI 1.) Over the years some $300,000,000 has gone this way, a large part of the total debt of the Cayman Islands. As part of this subsidy the government has been subsidizing essentially free travel for a vast number of Cayman Airways staff and their families and former staff and their families and dozens, if not hundreds, of current and former political appointees and their families, over many years. That needs to end. The entire subsidy to Cayman Airways needs to end. As an older Caymanian I understand the emotional attachment to Cayman Airways, but cutting the subsidy to Cayman Airways would eliminate half of the government’s projected deficit. It has to happen.

The government is also subsidizing the Turtle Farm to the extent of approximately $1,000,000 per month. This is what is shown by budget item EI49. That subsidy has been going on for years at a total cost of many tens of millions. I understand the emotional appeal of the Turtle Farm for Caymanians, but eliminating that annual subsidy would eliminate almost one quarter of the government’s projected deficit. It has to happen.

The premier proposes to keep the various “nation building” and other questionable funds that he controls to the tune of some $5,000,000 per year. (See budget item TP 52.) If that was eliminated another 10% of the government’s deficit would disappear.

The government also spends/wastes something like three quarters of a million dollars per year on what it calls “protocol services”. Perhaps that is where they put the bills for the personal servants, fencing, gas guzzling vehicles, personal Christmas lights, home electricity bills, etc., that are claimed (without any Constitutional basis) as “perks of the job”. See Budget Item CBO 9.

Credit card bills for luxury travel as well as “consultants” pay are buried in vague one line budget items. Double dipping by politicians, which costs the country an estimated a half million per year, is buried. The ministries controlled by the premier have a budget item (OE86) of something like $45,000 per month spent on “Compensation”, presumably to an entity outside government, with no indication of any benefit that the country receives for such an expense.

It is too easy for our politicians to say, “We really enjoy spending more and more of your money without any accountability and we don’t care how much it is going to cost you for us to get that money.” Perhaps that statement is too harsh. Perhaps it is more correct to say that the government has not even a glimmer of an understanding of what it will cost to implement new revenue measures of the type they have presented. 

Introducing any new forms of taxation, whether in the form of an income tax such as the proposed payroll tax or in the form of a VAT, will require government to greatly expand the civil service rather than shrink it. The proposed new taxes will also require government to put in place very expensive systems for collection and enforcement. Either of these tax systems will cost many millions for government and the private sector to implement. That will negate most if not all of any additional revenue and it will lead government to raise the rates of such taxes time and time again.

Sustainable government finances require prudent spending above all else. All the revenue in the world is not sufficient for a wasteful government. Forcing expats (and in a few months Caymanians as well) to subsidize government waste is not the answer. Every person and every organisation in the Cayman Islands should insist that every possible expenditure is cut to the bare minimum BEFORE we even think of raising taxes. If at the end of the day more money is required for government, then existing collection systems should be utilised to minimise the cost of obtaining revenue.

I would encourage everyone and every organisation to make yourself very clearly heard on this issue. If you do not, you will have only yourself to blame as you watch our country implode.

Category: Viewpoint

Comments (39)

Trackback URL | Comments RSS Feed

  1. Anonymous says:

    The Premier could raise a lot of money by selling awards on Heroes Day instead of giving them away.

     

    I would pay $5,000 for him to pin a gold-plated medal on my chest and proclaim me Excellent, Perfect, and Never Wrong, Knight Commodore of the Batabano Turtle Rangers.

  2. Anonymous says:

    Great article, all good, positive suggestions and no nastiness, thank you.

  3. Anonymous says:

    Income tax or payroll tax is not necesarily sustainable. An expat tax is even less sustainable as these people do not have to stick around.

    If income/payroll tax was the right answer, the Spain, Ireland, Italy, USA, UK etc etc would all be ok financially. They are actually much worse off than us!

    Continuing our system of consumption based fees (which nevertheless urgently needs to be updated) coupled with spending restraint is the soluition.

    We should be doing more to bring the business here from these other jurisdictions, but we seem to want to copy their failures.

     

  4. Joe B says:

    Very good post but what you failed to mention is that Caymans current crop of what is known as leadership does not have the ability or the disipline required to cut anything.  A bypass was required to keep Bush from eating himself to death.  The UK will have to do it or it won't get done period.  End of story.

    • Dan says:

      The reason why the UK leaves that up to the local government is that it is assumed that the local government should know the economic situation of the island better than them. I personally believe that our financial indepedence should be taken away and place in the hands of a UK expert economist whenever we don't meet a surplus cap of at least 20 million. The UK police man will make the necessary cuts and changes needed to bring the economy back to a surplus. 

      • Anonymous says:

        Another of many suggestions that would work.  It seems to me that the UK already realizes that even if they take over, spend all their money and time to fix Cayman it will not help them at all.  Add the fact that they will be blamed for everything and there is NO incentive to help.  Cayman will die a slow and painfull (for Caymanians) death.  Its future will be in the hands of whoever will be the new owners.  Soon Come.

  5. Anonymous says:

    Well written, balanced, simple, concise and irresistable logic…

    Thank you:

  6. Anonymous says:

    Cayman Airways…we can keep it just let private charter handle Cayman Brac (remeber Island Air)..that is where the loss comes into play..they got like 3 planes going 12 times a day …thats a lot of gas

    Welfare….that is a problem….here is my idea of what welfare should look like in Cayman…".Welcome to social services we will be providing you support for 90 days per annum after which point we will secure a United Kindgom passport and a one way ticket to the United Kingdom where you can feel free to go and attempt to collect"

    Oh yeah…we can combine the fire and police services and send half of those officers from all over the world back home and cut cost big time.  Thats about $7 million right there..

    Big boy hospital..sending people to panama was a good start but anyways don't stop there take USA off the list of healthcare locations for CINICO.

    Lastly, something I dreamed up today…you know all the fellows up in CIG CS with all the intelligence and big degrees.  You know, the big shots! Caymanian need to demand that these smart folks with the big jobs are put into the immigration department to ensure Caymanian get jobs. The problem with Caymanis that the CS has one monkey or Dinosaur at the top that has no idea what it is to delegate duty to someone perfectly capable and properly compensated to make decisions.  They are smoking that power crack and need more and more it seems.  Put the smart folks on the front lines for 3 months and give them authority to cancel permits and make some of these employers shake like leaf when they think of those very observant and educated CS employees who came from the top to sit in the back office at immigration to detect the stunts that are being pulled..that is the only thing that will fix the job situation for unemployed caymanians…not tax

     

     

    • Anonymous says:

      You mean the same ones that can't keep track of Government accounts and produce unauditable statements each year?  Yeah, right, they can do so much better than the regular staff at Immigration.

      • Anonymous says:

        Government has too many accountants and HR people that do not add any value to government. This is because of the accounting system that no-one can understand.

        Ezzard is right. Go back to centralised accounting and HR systems. That alone will eliminate a significant number of wasters. Then those that are CPA's must replace work permit holders.

        We should have no one unemployed in an over employed economy. PLAIN & SIMPLE.

        PROBLEM SOLVED, because staffing expenditure will be down and a strict centralised Treasury thru the FS will be held accountable.

         

         

    • Anonymous says:

      It's two planes going to Brac & Little and believe me they are complaining all the time that it's not enough flights.  What needs to be done is to get a bigger plane not the jet but say a 45 seater to fly the Grand to Brac routes which would cut down on so many flights per day.  Those poor planes barely gets a rest.

      • Anonymous says:

        An airline makes money when the planes are flying often, full and highly utilised. Having a large plane sit on the ground to save fuel is a money loser.

  7. Anonymous says:

    I just read that HSBC set aside $2 BILLION in the US for the potential fine. It ended up being $700 million. Mexico fined them $28 million. What can CIMA fine – $10,000 maximum? One fine like the US, and Cayman will never have to worry about a budget again.

    • Dennis Smith says:

      Given the massive damage that they have inflicted on Cayman. All our years of polishing our regulation and compliance reputation down the tubes now. Just what the "Tax Justice Network" wants. How have we responded? A massive fine would signal our displeasure to the world. Better if we asked them to leave. Don't fool with the Cayman Islands. Play by the rules or leave. I suggest a $20m dollar fine and a loss of their banking license. How come we haven't heard anything about this. Could it be that Cayman isn't really serious about compliance?

      • Anonymous says:

        Most wealthy and therefor powerfull people in Cayman have an account with HSBC including the premier.

        Probably some phone calls are made and we will never hear from it again.

  8. Anonymous says:

    Great post!

    Even simpler still I am not sure why it has not been yet mentioned the possible increase in registered office fees? They were supposed to go up a couple of years ago and did so by a very small amount. $1,000 extra per year is pennies to these corporations and yet it could bring in $30M in NEW and FREE annualrevenue for the government. And that is conservative! Taxing people who live work and spend money here is recycling our own funds and for deals that no one agrees with.  There should be a tier or bracket system for how much a company should pay in annual fees.  Contrary to what some may believe, CIMA does a good job at continuously meeting with clients domiciled here and are a preferred regulator when you compare them to others.  I do not think that this expense would outweigh the switching costs of re-domiciliation.  Can we maybe get a comparison of annual fees somewhere like Bermuda and Delaware?

    Taxes are only appropriate for countries where you can see the benefits! Where are they here?

    Charge everyone a garbage pick-up fee and a recycling fee. This is on par with first world countries. And our garbage is much more of a problem! This will not only reduce the amount of garbage but create opportunities for new businesses and streams of revenue.

    I won't even get into the idea of cutting funding to the churches. As backward as it is I just don't see those cuts being approved by McKeeva. The UK needs to draw the line and make it mandatory.

  9. Anonymous says:

    The current deficit amounts to something like $2,000 per Caymanian. The total debt of government, including unfunded liabilities, amounts to something like $50,000.00 – 75,000 per Caymanian. That is money that we and our children owe because current and past governments could not live within their means. That must end.

  10. Anonymous says:

    Here is another point on how we could have avoided 40% of the current deficit.

    The government is now spending more than $20,000,000 each year in interest on hundreds of millions of dollars in debt that can be attributed to past subsidies given to money losing entities that still require subsidies. That is about 40% of the current deficit. We simply cannot afford to continue to throw scarce good money after bad. It must end.

  11. Anonymous says:

    Very clearly and rationally expressed.

     

    Now are there enough people of integrity willing to  take a stand to to end the waste and corruption that are so rife in the Cayman Islands?

  12. Anonymous says:

    Very well thought out post my friend. The answer lies in cutting expenditure – not getting more to spend, and you have come up with some great ideas. I hope the Premiere reads this.

  13. Anonymous says:

    This is proof that politcians should not be in control of the money. They  may set policy as long as such policy does not violate the Constitution but they should not have access to funds to spend as they please especially without proper and detailed publicly available accounts.

     

    Bermuda faced the same problem with their national airline and got rid of it before it drained them dry. When we fly Cayman Airways, the price of the ticket is far greater than the amount shown on the receipt. You also have to take into account that $2,000,000.00 per month of all of our money also went to sustain the airline. This in turn causes taxes to be leviied in other areas which increase our overall cost of living and leaves us with less money to buy the overpriced airline ticket.

     

    As long as voting Caymanians continue electing people based on patronage rather than being honest, qualified and dedicated to public service then the downward course we're on will not change.

     

  14. Anonymous says:

    100% agree.  It seems like the Cayman Islands right now are divided into two camps: on one side those who understand that the solution to our financial problems is to reduce the ridiculous level of spending, and on the other side are the MLAs!

    How can they bring in an income tax when the illegal gas cards have not been cancelled or any money returned? The "Nation Building" slush fund is still being used to buy votes, the free solar panels and renovations are still going ahead, the government and its hangers on are still jetting around the world, the illegal cost of the illegal paving is not being pursued, suspicious duty waivers are still being granted, there are not reliable accounts for public finances, CINICO has serious financial irregularities etc etc ad infinitum.

    The author is 100% right that no amount of new revenue will be enough to fill the bucket until some plugs all the holes.

    If this tax goes ahead it will be the most absurd, unjustified, unfair, divisive and harmful thing this government could do.

    The only good thing that has come out of this is the number of right-minded Caymanians who have come out against this tax despite being the supposed beneficiaries of it (because they are smart enough to know they will ultimately have to pay as well).  They have shown the expats that the stereotypes are wrong.

  15. UDP ;-) says:

    MB got it all figured out.  It's called poli-science.

  16. Anonymous says:

    Excellent comment.

    One of the problems with public servants and politicians everywhere is that it is very easy for them to lose the concept of 'value for money' and replace it with the idea that 'there's plenty more where that came from' when it comes to spending other people's hard earned cash.

    In the Cayman Islands this problem has become acute because there is a complete lack of accountability. As has been seen in recent revelations money vanishes without trace, the Auditor General's attempts to sort out the mess attract abuse and the government plays silly b***ers with daft plans to re-vitalise the economy that change from day to day.

    There's only one sane way to curb the deficits – stop public servants and politicians throwing money down the toilet. You don't, as has been suggested elsewhere, need to suddenly sack 1000 civil servants but you do have to curb their spending habits and weed out the staff who don't pull their weight, particularly those who only ever turn up at work for the annual Christmas party.   

    If you don't get a handle on this the FCO will come in and take over – that you do not want because they will bring with them direct taxation including things like VAT and income tax. At the point life for everyone will get very expensive, the ex-pats with their associated companies will disappear and the Cayman Islands economy will slide back into the 1950s.

  17. Anonymous says:

    Cayman Airways (sell it, see if Virgin still wants it)

     

    Boswains Beach (sell it, if you can, or close it)

     

    Nation Building (stop it, unless you think you will go to hell for not giving the ministers the money that should come from their congregations. Hmmm, is this anything like the selling of indulgences that got Martin Luther all riled up?).

     

    Gas Boy, cut up the cards….all of them, the civil servants cannot be trusted. (so much for the grass roots "christian" culture in Cayman. It's all about me, me, and mine.)

     

    These issues are evidence of corruption. Corruption, both high and low, is the elephant in the room. Incompetence is the rhino.

     

    Eliminate these subsidies and Caymanians can balance the budget without the draconian taxes and fees that McKeeva proposes. The only Caymanians who will be inconvenienced by the sale of these "assets" are the ones who are McKeeva himself and the well connected stooges who live high on the hog at the expense of their fellow Caymanians.

    • Anonymous says:

      Government needs to be downsized to just provide the services which can only be best provided by Government ie Police, Immigration, Customs and Financial Services Oversight and a few other services.

      Cayman Aiways should be closed down or sold to some private enity as it is a loss making entity and it has been for quite many years.

      The Government should see if the guys that have the dolphinarium next to the Turtle Farm are interested in purchasing the farm and maybe turning it into a watersports park or some other attraction. Those guys are quite affluent and should be able to do something along that line

      If the hospital is breaking even only after subsidy, Government should look into selling or leasing it to some reputable not for profit hospital operator with the assurance that they will employ as many of the existing staff that are productive and earn their pay.

      The same applies to the Community College, if that is not breaking even until after subsidy, it should be leased out or sold to a reputable not for profit college system with the same assurances as stated above in respect to the hospital.

      As for other Government buildings, Government should form a corporation to own the buidings and then try to sell 50% of the corporation to individuals. The corporation should also have its shares listed on a stock exchange in order to give the shares liquidity and be an attractive investment for pension funds. Governmnet would therefore have cash from the sale of its 50 % interest in its buildings in order to pay off Government debt and it would be a lessee of an entity in which it has a 50% interest. It would only have to pay rent on the premises and if there are any  interest costs and capital repayments as well as bulding upkeep, it  would be responsibility of the corporation. It would also give Caymanians a way to have an ownership stake in its own public buildings. 

  18. Ari Greenwood says:

    Your article is correct about government controlling their spending. The average man on the street knows that we cannot spend more than we earn.

    I have three suggestions that I would like to add:

    The turtle farm recieves an annual subsidy from government. One way to diminish that subsidy is for Govt to allow the turtle farm to set-up at their facility a gaming room with about a dozen slot machines. That way the area might attract more visitors, especially cruise ship passengers. Additional if we had food stalls set up there, that represents a unique dish from each district, that would provide additional revenue and employment especially if the food vendors are renting the facilities from the turtle farm. Throw in a band and it will make a memorable day for the tourists. Even though we have to take into account that there are slot machines on board the cruise ships, this creates a different environment.

    If Cayman Airways maintained a gaming room in the departure lounge with slot machines this would bring additional revenue to the company as those waiting to depart will have something to do rather than sit and wait. This will reduce the subsidy to the airline.

    These two options would result in very little monitoring costs by government and would provide a few jobs for Caymanians.

    The third option which I addressed in an earlier article and which was not well received, was the replacement of customs duty with a sales tax. The Customs Tariff Law 2009 Supplement 5, is a nightmare for importers. It consists of 11 pages of hundreds of specific items with varying import duty rates on each item.

    Sales tax is a more efficient income than import duties and is one that the UK would accept as a sustainable revenue measure. It is more economical to government because the tax is based on the selling price rather than the invoice cost and freight alone, and it requires less employees to monitor.

    It will bring increased revenue for government yet be beneficial to both the merchants and the ultimate cost to the consumer including the tax will be around or slightly less than prices are now.

    We already have sales tax in the Cayman Islands, although we make up fancy names for it. CUC adds the tax to customers bills, the hotels adds the tax to rooms and calls it accomodation tax, insurance companies add the tax to insurance payments.

    I am esentially not suggesting anything new, just that we call the sales taxes that we have by their proper name, and replace customs import duty with the more efficient and sustainable sales tax system. Only on imported goods as per the customs duty.

    I accept that some of us are confusing sales tax with VAT but these two taxes while similar, are different in the way they are calculated and paid to government – with VAT being more complicated, in that the tax is based on the value added by the seller.

    • Anonymous says:

      Wow! Are we to believe our tourists are now shaking gambling addicts who can't leave their cruise ship (where there are slot machines) long enough to take a tour of the Turte Farm without needing a fix in between? Read a good book while waiting in the airport and it might lift the level of thought a little higher than constant base thinking about gambling and such addictions. Maybe the "incredible" proposals we now see, such as the expat tax, and the situation we find ourselves in, are simply because as a people we have sank to the level where we are getting the government we deserve.

      • Anonymous says:

        As far as I know gambling on board the cruise ships is not allowed while in Cayman waters.

        So what are your suggestions to help the Cayman economy? Read a book in the departure lounge?

  19. Angel of truth says:

    These is  very good points that you make, and you made it with out the insults and cutting the civil service at this time to burden government with more expence.

    I truely hope they liston to you sir, but of course you are on the other side and we all know what that means.

  20. Anonymous says:

    Very well said, as usual!

  21. JTB says:

    Well said.

     

    These points are unanswerable, which is why Mr Bush will ignore them.

  22. Anonymous says:

    "If you do not, you will have only yourself to blame as you watch our country implode."
    I agree with eveyrthing you stated, but am unsure if that time hasn't already passsed.

  23. Ari Greenwood says:

    Good article!

    In regards to Cayman Airways a good idea might be for Govt to allow Cayman Airways to set up slot machines in the departure lounge.

    In regards to the turtle farm – the same idea might help the finances, while turning it into a dual attraction.

    This will not require much Govt oversight and proceeds should go to those two entities to help their finances and reduce the government subsidy to them.

    And as I suggested a few weeks back replacing the outdated customs duty system with a sales tax will require less civil servants than the customs department now employ. It will bring more funds to government because it will be calculated on the landed cost plus the profit.

    Both merchants and consumers will benefit slightly as well.

    Sales tax will also meet the UK requirement for a sustainable income – yet it is not a new tax, just a replacement tax for the customs import duty system that we already have in place.

    Reducing government spending is necessary no matter what form of tax we have.

    We have to take into account that the words 'tax' and 'change' normally arouse emotion and suspicion.

  24. Anonymous says:

    Thank you. Now if we could only get the eternally honorable to listen.

  25. Anonymous says:

    Very well said. Very clearly put. I agree 100%

    I too will be at the meeting this evening to protest this unfair tax.

    A Caymanian of many generations….and a Civil Sevant also.

  26. Anonymous says:

    it also needs to be pointed out that the subsidies to money loosing entitites like Cayman Airways, the Turtle Farm and Pedro Castle amounts to almost $1,500 per year for every Caymanian man, woman and child. Most of us would rather have that money in our pockets.

  27. Anonymous says:

    "Perhaps some of our other highly paid politicians might now make equally clear suggestions for getting our finances out of the current mess, rather than just waiting their turn to board the gravy train."  They should have been protesting the way government handle their finances from long time instead of opposing every project that was suggested from the current government. But I think the OMOV was a distraction from the time and energy they could have put on this budget issue.

  28. Anonymous says:

    Very good points. Here is another one. We are now paying interest at something like 5% per year on the hundreds of millions in subsidies that have been paid over time to Cayman Airways and the Turtle Farm and other white elephants. That interest on money thrown away accounts for something like $15 Million of the current deficit, approximately 30% of the deficit. That is another reason why the subsidies have to end.