Archive for August 29th, 2009

The three letter word

This week the inevitable happened. In the face of dire government finances Cayman began using the ‘tax’ word and even debating the merits of imposing it. Although there are a number of complexities to government, it is essentially about raising revenue and then spending it. 

Clearly over the last few years CI government has been brilliant at the second but not so good at the first.

Cayman has still a long way to go on the politics of taxation and how you can manipulate society through it, but the idea that it can raise steady cash for government coffers without causing massive pain has began to gain a little traction in the last few days.

The tinkering around the edges of cutting a little expenditure here, dropping a few civil servants who are overpaid and sleepy there, or copying on bothsides of the paper and turning up the government a/c may well save a few dollars but it will not, as Tim Ridley noted, pacify the mother country, which is telling us to find stable, sustainable, long term, revenue generating measures – a.k.a taxes.

Of course, the idea of taxing earnings, income or profit goes against the grain of Cayman’s fundamental success and its offshore industry, but Ridley’s idea of a property tax is perfect. As he noted, if you take out the really cheap properties at the bottom you won’t burden the poor; if you keep the percentages low enough the rich won’t notice, and while the middle classes will always complain they will be able to afford it. Moreover, it should make people begin to take a greater interest in government spending and policy as a result.

When people become real tax-payers as opposed to fee or duty payers and see their dollars going into government coffers to be spent on, for example, police and garbage management, the public starts demanding more accountability from their elected officials and generally becomes more active. So taxation could offer Cayman two benefits: a direct way out of our financial embarrassment and a more politically aware population. While we have a vociferous few that engage in debate and demand accountability from their MLAs, an awful lot of people here who are eligible to vote have little or no interest in local politics. Taxing them might just grab their attention.

The property tax is a good choice, and provided it is levied fairly and, as Ridley suggests, in a manner that allows people to see where this community tax is going, we are unlikely to see major opposition from most home owners.  

It is expected that real estate sector would object immediately the words were out of Ridley’s mouth, but they are naturally worried about their unpredictable livelihoods. Their industry has slowed some over the last few years so they are hardly going to welcome a tax that could impact their business, no matter how slight. Their argument that the entire bottom will fall out of the market is a little extreme however, given that property taxes exist throughout the western world but the markets persist.

If a foreign investor is deciding to buy a $1 million condo on 7MB he will hardly be put off by a $2500 annual community tax. Moreover, a local civil servant living in a $200,000 home in Savannah will probably be a lot happier paying $1000 per annum than losing his job.  

Tax on property value is fair — those who own less will pay less those who have more will pay more. It will be sustainable in that government will be able to collect it annually and depend on it as the properties will always exist and belong to someone who is liable. Collection infrastructure shouldn’t be problematic either as owners can be registered for property tax through stamp duty records.

Currently, we all pay the same vehicle registration whether we drive a hummer or a mini, we pay the same duty when we shop at Fosters whether we own a bank or collect garbage, and small mom and pop businesses have to pay the same work permit fee for an accountant as Pricewaterhousecooper, none of which is very fair. And while the property tax will ruffle a few realtors’ feathers it will probably go down well with most people and, more importantly, get us out of a pretty awkward situation.

If government doesn’t present the UK with a reasonable and sustainable tax measure Chris Bryant, the OT minister (better known in the media as Captain Underpants), won’t give the green light on any more borrowing. (See UK tells Cayman to levy tax)

Without it we are, as they say, up the proverbial creek without a paddle and government will have no choice but to make dramatic cuts in public service. And, as any fellow expats out there who can remember the three day week in the UK in the 1970s will testify, when governments really cut public service, you really begin to notice.

The distorted belief that government workers don’t do anything most of the time gets brought sharply into focus when they actually do stop doing what they do. When garbage starts to pile up on the road side, when the mosquito unit closes down, when child and family services has nothing to give their 920 clients, driving them on to the streets, when there are no teachers in the classrooms and traffic signals are not repaired, when the port has to close two days out of five, and work permit queues stretch the full length of Elgin Avenue and when the water supply turns to a trickle — then even the realtors might say, “Shucks! Maybe that Ridley chap was on to something and the property tax idea could’ve worked.”

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