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 awfullot 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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Category: Viewpoint
Miss Wendy, I Respectfully Disagree with You on This One,
The Cayman Islands have historically attracted business as a "Tax Haven". Both the Caymanian and Expatriate investors in Real Estate seem to accept the One-Time Stamp Duty Fee. They know what the final costs of their real estate transaction will be.
However adding an annual property tax on top of the Stamp Duty will be unacceptable, especially to the Expatriate investors. The Property Tax may start off at some sort of introductory rate like 1/4 of 1% with some exceptions. Yet, the Government will always be tempted to raise rates to support funding for this or that under the guise of community service. The true costs of owning Real Estate will be at the mercy ofsuccessive Governments of differing philosophies who have already proven that they cannot properly manage public funds.
Could you please do some investigative journalism (perhaps in conjunction with Mr. Ridley) to provide the Caymanian Public with the revenue figures generated by Stamp Duty and the portion of total revenue that it provides for Government. My figures show that it provides at the range suggested by our Mother Country – in other words the Real Estate industry is doing their part. I would also be interested to know what has happened with other Caribbean islands who introduced Property Taxes – such things as how it started? At what rate then? At what rate now? Percentage of native/expatriate population who own land? Number of properties owned by native population over the years?
What would it costs for our Government to implement a Property Tax system? (which will likely become another mismanaged, bureaucratic Government entity). What sort of revenue will be produced? What about the loss of revenue from Stamp Duty? What about all the legal stuff – people who already own real estate with the understanding that they would only pay a one-time stamp duty?
Be careful Government, when the Expatriate investors start looking elsewhere, revenue will decrease, property values will go down and the property tax burden will negatively affect the Caymanian population (and unfortunately those who can least afford it).
Property Tax will discourage inward investment in real estate as one could not just hold onto real estate as a savings/investment tool (because you will always have the expense of a property tax).
Government needs revenue, but it also need dire reform. It is sad for me to say this but the civil service needs to be reduced . . period. Policies and procedures need to be put in place and our Mother Country needs to keep a more watchful eye to ensure that our finances do not get to such a state again.
The salaries of our Government officials and Senior Civil Servants have simply gotten out of hand. Transparency and accountability need to be part of the Public Money flow process.
Sign Me,
Property Tax, a well-intended and ill-conceived idea.
Sin Tax, Lottery and Casinos are proven money makers for Governments all around the world!
Any discussion of whether to tax, and if so how to tax, should begin with the development of some form of concensus around the notion of the role of government in Cayman. The postings made to this article and others reflect clearly divergent views regarding not only the legitimate role of government, but also the capacity of past and present elected officials to establish and maintain policy designed to fulfil such a role. To the extent that this observation is correct, we the electorate are following the Fire – Ready – Aim approach to decision making that has sadly been the hallmark of much of recent governance.
In my view government should only provide security (the protection of life limb and property through the police, fire service, border protection and national defence) and any other goods and services that the private sector cannot provide more cost effectively. Even without this perspective, there are undoubtedly potential arguments in favour of broadening Cayman’s tax base which might be accepted by many readers. However, in my view these arguments necessarily fail given the fact that no government in Cayman in the past 10 years has offered any evidence that it understands anything about fiscal prudence. All governments in the past 10 years have chosen to spend money that the government did not have. On that basis, providing more secure and broad-based sources of funding to incompetent politicians and civil servants is nothing more than an invitation for them to create further havoc.
I would like to suggest that there should be no further taxing authority given to any of our politicians without a Constitutional amendment which would remove the "drug" to which they all seem to be addicted – spending money which the country does not have. Such a Constitutional amendment would make unlawful any budget deficit and any government borrowing and would require that any government spending must be based on existing cash available. Such a provision in previous versions of the Constitution would have prevented the current mess.
This recommendation is unlikely to find favour with politicians, and in particular the corrupt ones who want to have the option of bribing the electorate with promises of expenditure for which future generations will be obliged to pay. Nevertheless, I do not see any possibility that Cayman will have long term prosperity without this restriction on the spendthrift and just plain idiotic behaviour of our politicians. We may have limited choices regarding which politicians are going to run the country, but we should protect ourselves by limiting the amount of damage they can do.
A Hummer is 1000 per year…..there should be more conspicuous consumption, show off taxes!
Let’s put this statement into perspective: people have a "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."
On Cayman Brac:
1.) One worker leaves her position in the office of District Administration and they replace her with 4 people.
2.) A crew of several men take one year to paint the white lines in the road, just to start all over again. Isn’t there a machine that does this in say, one week?
3.) 2 men cutting bush on the side of the road sit on their coolers holding their machetes for 6 hrs. out of 8. Isn’t there a machine that can do that in say, one month?
4.) There are no direct flights from anywhere in the world to Cayman Brac so how can it be considered an international airport? Why are there so many security officers?
5.) There aren’t many fires on Cayman Brac. Why do we have so many firemen?
6.) Why are there so many Customs Officers?
7.) The barge comes once a week. Why are there so many dock workers?
8.) Why are there so many Immigration officers?
Exactly! Spot on! It’s a benevolent society living on government handouts.
Cut the civil service staff by 25%. They will still cope. Cut the pay of those left by 25% and reduce their ridiculous perks. They will cope or they can find another job. That will save 45% of costs of staff overnight.
Why are we paying for a Rolls Royce civil service and getting the service of a beaten up pre-Ivan Jeep?
Right now in the current job market we have a great position of leverage over government staff to get things back on track after past excesses.
If it is taxes or cutting civil service costs then I vote for cutting civil service costs.
To start – civil service needs to be made more efficient and redundancies are abound.
Wendy:
Thanks for that last paragraph, speaking as it does to our civil service that needs both Caymanians and expats.. It is depressing to see the "get rid of the expat civil servants humanely by not renewing their contracts" stuff on some of the CNS posts-totally ignorant of the crucial roles played by expats (I’m a Caymanian by the way) in schools, courts, social services, hospital, prison, garbage collection.
I’m a peaceful person but if I had the chance I would love to pop the mout’ of that idiot who has posted twice about "Cayman can no longer afford the luxury of expats". Luxury? Like it or not, Bozo, the country would grind to a halt!
The realtors might say, “Shucks! Maybe that Ridley chap was on to something and the property tax idea could’ve worked.”
AND IT WILL…
SO LONG THIS TAX DOES NOT APPLY TO THE POOR MAN WHO HAS TO PAY HIS MORTGAGE AND PROPERTY INSURANCE.
BUT THIS TAX IS BETTER THAN THE INCOME TAX
If we limit realtors’ fees to 3% (still way more than most countries) at the same time as imposing a 0.25% annual tax the net effect on the property market would be minimal.