Miracles and Mirages
A recent NY Times column, "Irish Miracle – or Mirage", written by former IMF Chief Economist, Simon Johnson (I vaguely recall Cayman Finance quoting him earlier in the year, so I guess they would consider him to be both credible, informed and wise) and Peter Borne, Principal of Salute Capital Management Ltd, had this amongst other things to say about Ireland:
“The Celtic Tiger’s impressive reported growth over past decades was in part based on its aggressive attempts to help major corporations in the United States reduce their tax bills.” They further suggest, “The remarkable success of this tax haven means roughly 20% of Irish Gross Domestic Product is actually ‘profit transfers’ that raise little tax for Ireland and are owned by foreign companies.”
Such is the reality of the so-called economic success of Ireland, a country where the Government sets corporate taxes at an internationally attractive rate of 12.5% and now finds itself in dire economic and financial straits.
The authors go on to point out that Gross National Product, which excludes the profits of foreign residents is for most countries nearly identical to Gross Domestic Product, but not so in Ireland as a direct consequence of the “profit transfer” element.
Cayman’s reality is Ireland’s mirage much magnified.
In the absence of any corporate taxes or any suitable alternative fiscal mechanism, it is safe to suggest that the portion of Cayman’s GDP attributable to “profit transfers” is, at a minimum, double the Irish figure of 20%.
As I have stated in the past, this is not a reality that was lost on our leaders and planners. As far back as the late 1980’s the then Financial Secretary publicly lamented the fact that the per capita GDP attributable to the Cayman portion of the population was 50% of the heralded world class headline number.
As nations around the world grapple with the challenges of the current global economic conundrum, it is clear that the smoke and mirrors economic machinations of the few (the financial elite) who have been the primary beneficiaries of the three decade old scam, will fight tooth and nail to ensure very little in the way of fundamental change is permitted anywhere in the global financial architecture.
We can be assured that the reflexive response of the self-interested captains of the industry here, as in every other major financial centre, will continue to bemoan and decry any and all suggestions for enhanced regulation and greater contributions on their part to the fiscal solutions which must be found in the face of the deficit problems that plague most nations, large and small.
We should see these responses for what they really are.
Naked unadulterated greed.
Ordinary folk in the Cayman Islands would do well to begin to understand that what has been labeled as OUR economic success would be more accurately described as meretricious.
Acceptance of this fact is a necessary first step to seeking the formulation of an alternative developmental model that would place the local population at the centre of the process.
Category: Viewpoint
Andre, despite the financial giants jumping on here to roll out criticism against you I am declaring my full support. I thank you Andre for standing by your position on this issue for these many years. I can say that many of us lowly souls out here who have not been so financially fortunate as those who criticise you, fully understand and accept your stance to be accurate.
If nothing else, Andre Iton consistantly demonstrates that he doesn’t understand global asset custody, the flow of capital, and Cayman’s competing position in that sphere. He fantasizes that it would somehow be acceptable to skim a percentage on the global assets ledgered here (but physically custodied elsewhere) in an effort to correct a social inequality he wildly attributes to the presence of our financial industry…I eagerly await his social thesis that will illuminate his logic path.
Really, there is no better way to put this, but Mr. Iton’s analysis is just unintelligible nonsense. If it were a class paper written by a 14 year old revolutionary, it might get a borderline pass with a comment that a bit more research on Ireland might have saved the whole thing descending into fantasy after the first couple of paragraphs.
Andre and readers: Simon Johnson and James Kwak have a website:
http://baselinescenario.com/
They have also written a book:
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
Both are interesting reading.
Question is what do we do about the real problem here described? Which, leaving aside the whole issue of financial regulation, is that rapid unplanned growth create as many social problems as it does economic advantages.
Mr Ridley’s article begins to suggest a way forward. Lets sit down and have a national discussion about where we want to go. One where all stages of the strategic planning process are conducted in the light of day and all sectors of society are equally represented.
There are strategies to ensure that such a discussion would indeed have a national scope and input– as well as to prevent (lets call it) Cayman 2040 from going the way of Vision 2008.
Shortly after winning the election the premier announced that his office would be in charge of a new national plan. little has been heard since. If such a plan is in the works it becomes a matter of whether there is the political and the popular will to make such an initiative truly representative of the whole society, and furthermore to consistently monitor and evaluate progress.
Dear Hmm:
Leonard Dilbert and Kenneth Ebanks are in charge of the "new national plan" you refer to. Don’t hold your breath.
Say wa?? Is this some kind of joke?!!!!!
Mr Iton is XXX making incorrect comparisons: Ireland’s low tax environment offers an attractive double taxation apperatus; for comparison purposes, an entirely different type of business than Cayman’s no tax model (and not better)!
Further, the CI Gov’t’s fiscal failures are in no way attributable to the "naked unadulterated greed" of Cayman’s Financial professionals. In their failure to keep accounts (for half a decade), the CI Gov’t remains entirely unaccountable and is yet to take any meaningful action to remedy.
If you overlay a list of Cayman’s electorate with a list of Cayman Gov’t employees you will see why no action has been taken. But it must, for the good of the nation and for the future of our position in that industry (which is under attack from many fronts). XXXX
Ireland’s woes were not caused by its low corporate tax regime. It was caused by rampant property price inflation and poor lending decisions made by local banks to fund every spiralling property development. That is the source of Ireland’s woes, and Cayman has not experienced similar problems. So the central thrust of Mr. Iton’s viewpoint is misconceived.
XXXX
While it is true that the skilled expatriate workforce do inflate the GDP of Cayman, the GDP of "ordinary folks" or the Gross Ordinary Folks Profit (GOFP) is still substantially higher than what it would be but for the in flow of earnings from the foreigner heavy industries.
The point which Mr. Iton fails to grasp is the cost sensitivities of these industries – tourism and financial services. Cayman already takes too high a slice from these, and the businesses are leaving or closing down.
XXXX
Andre,
With all due respect, the argument that Cayman’s economic model and that of Ireland are identical is itself meretricious if not completely specious. The argument raised in the NYT article referred to the use by US corporations of the Ireland US double tax treaty. Cayman unfortunately has no such treaty. Not everything in print lends support to your long standing argument against Cayman’s financial services sector.