Archive for August 6th, 2012
Expat tax off table again
(CNS): The premier has stated that he believes he has the commitment from the private sector supporting revenue measures that will not impact the poorest people and will enable him to remove the tax on earnings of work permit holders, which he had called the 'community enhancement fee'. Confusion reigned on all day Monday after conflicting messages were issued to the media about whether or not a group of business leaders had persuaded McKeeva Bush to drop his controversial tax proposal, and it was not until Monday evening that he said the fee was officially off the table. No details have yet been given about the alternatives, which are believed to include more fees on the financial industry and property fees in tourism zones.
In a short statement Monday evening Bush confirmed that the community fee was now off the table as “robust and credible alternatives” had been identified that did not impact poorer Caymanians, but he did not say what they were.
"I will give an update and confirmation on Wednesday evening at the Mary Miller Hall,” Bush said, following the cancellation of the planned Monday night meeting as a result of the weather conditions.
Meanwhile, the Facebook group Caymanians and Expats United Against Taxation submitted a range of possible alternative revenue sources to the premier’s office on Monday afternoon.
“We have come up with some great ideas that are not discriminatory,” said Eden Hurlstone, one of the young Caymanians who founded the group, which lit up the social media scene in Cayman following the premier’s announcement on 25 July that he would be introducing a 10% tax on the earnings of expatriate workers.
“We don’t think it’s right to ask the guests in our country to repair the financial damage which was as a result of mistakes made by both the UDP and the previous PPM administrations,” he said as he called on government to curtail the extravagant spending and produce audited accounts to show the Caymanian people exactly how it was spending the half a billion dollars it collects from the people every year.
Although there has been no confirmation on the alternatives that the premier has accepted, it is understood that they include increased work-permit fees on the financial sector, as well as further increases on the financial industry across the board. There are also suggestions of a property fee that will impact condos in tourism zones, though this had not been officially confirmed.
Teen gunman has sentence cut on appeal
(CNS): A teenager who was found guilty of robbery and firing at a police officer while trying to make his escape has had his 16 year prison sentence reduced on appeal to 9 years. The Cayman Islands Court of Appeal found that the trial judge who sentenced Elmer Wright to an accumulation of 16 years in jail for robbery, possession of an unlicensed firearm and ammunition as well as the unlawful discharge of that weapon had not considered the young defendant's age when he committed the crime, although he was 18 years old when he was tried and sentenced over a night time gas station heist.
Wright, who is now nineteen years old, was the only person ever charged in the case and was convicted of a catalogue of offences relating to the armed robbery that took place at Mostyns Esso in Bodden Town in 2010. The teen, who was 16 at the time of the crime, was said to be one of four men that planned and executed the robbery at the small gas station and community shop at around 10:30 on a Friday night in June. The robbers stole around $1000 during the hold-up, in which a customer was gun-butted by one of the offenders.
As the robbers fled the store, police picked up their trail and gave chase towards the Northward area. When the getaway car finally stopped the robbers got out and ran off. However, before the young teen fled he turned and fired a shotgun on the police patrol vehicle. He was later apprehended by the police a short distance away with various incriminating pieces of evidence including shotgun shells and money taken from the gas station.
After a judge alone trial before Justice Smith, Wright was found guilty of the robbery, the possession of the gun and ammunition and the unlawful discharge of a weapon but he was acquitted of attempted murder.
The judge said at the time of sentencing that despite the defendant’s age, it was important for the court to send a clear message, otherwise public confidence in the justice system was at risk.
“The court must bear in mind the welfare of young offenders but when they deliberately commit serious offences, as the case now before the court, there is a legitimate public expectation that the defendant is severely punished,” he said. The judge added that the sentence had to also serve as a warning to other would-be offenders of the gravity of the offence and the risks associated with behaving in the same way.
He gave Wright the statutory minimum ten years for the possession of the gun, twelve years for the robbery and seven years for the possession of the ammunition which he ordered to run concurrently. However, he gave the teen a further four years jail time for the firing of the weapon, which he ordered to run consecutively because, he said, it was a separate offence as it occurred while the gang members were making their escape and not at the scene of the crime. The result was a sixteen year prison term.
In response to the appeal claim filed on behalf of the young offender by his attorney Nick Hoffman, of Priestley’s, that the sentence was “manifestly harsh”, the Court of Appeal agreed.
It found that the judge should have given greater consideration to the fact that the teen was only 16 when the crime was committed and he could have sentenced him in line with the youth justice law. The appeal court said he was wrong to think he was bound by the statutory minimums or sentencing guidelines designed for older offenders. The legal panel of senior judges said the trial judge should have had greater consideration for the totality of the situation, although they agreed that the teenager had committed a serious offence.
The court set aside the sentences and imposed new ones that they felt were more appropriate. They reduced the robbery sentence to seven years, the possession of the ammunition to 4 years and the ten year mandatory minimum to seven years, all of which they said should be concurrent.
They agreed with the judge’s decision to impose a four year sentence on the teenager for shooting at the police patrol car but ordered that two of those four years should run concurrently and the remaining two consecutively, resulting in a new nine year prison term for the young offender, which would include the time the he has spent in jail since his arrest in 2010.
Mac defers critical meeting to Wednesday
(CNS): As the country waits on tenterhooks for the premier to clarify his position on the controversial expat tax proposal, he announced the postponement of a critical public meeting on the subject Monday afternoon. At 3:50pm the premier’s office circulated a notification that the meeting planned for this evening about the issue would be cancelled and rescheduled as a result of the poor weather conditions. As rain beat down on Grand Cayman, Bush said discussions on what he has termed the Community Enhancement Fee and the government’s 2012/13 budget would be rescheduled for Wednesday night at 7:30 at Mary Miller Hall in George Town.
The entire community will now have to wait a further two days to hear whether Bush has finally been persuaded that there are other options to the imposition of direct taxation on work permit holders or if the 10% take from those with annual earnings of $36,000 and above will stick.
Check back to CNS laterfor more on the proposals made by the local business group, the social media activists and others.
Miller will lift expat tax
(
CNS): The independent member for North Side has confirmed that if he is part of any new government formed in the wake of the 2013 election he will ensure that direct taxation will be scrapped if the premier actually implements the controversial expat tax. Speaking to CNS as confusion mounted over the premier’s position on the proposed 10% payroll fee on work permit holders’ earnings, Miller said that while he may not be guaranteed any position in any new administration, if he was given a chance to serve in the next Cabinet it would be a priority to overturn the contentious tax. Commending the private sector group for its intervention this weekend, he raised concerns about the continuing uncertainty.
“Despite the efforts of the private sector group over the weekend, we note today that there is still a lack of clarity and no small amount of confusion coming from a subsequent statement from the premier,” he said in a statement Monday. “This is disappointing but hardly surprising. Sadly, it is in keeping with the frightening level of incompetence with which the premier has discharged his responsibilities as the minister of finance."
The North Side MLA, who has said he intends to retain his political independence when he stands in his constituency in May 2013, has said he will be running with any “coalition of the willing” that will work towards the removal of McKeeva Bush from office and then form a government to begin to repair the extensive damage and irregularities associated with this current administration.
He also committed to overturning any direct taxation imposed by the premier, which he hoped would reassure the business community that, even if the premier cannot be persuaded in the next few days to take a different course, the tax will be short lived.
In the meantime, however, the outspoken MLA once again called for the premier to relinquish the position of finance minister at the very least, even if he is not prepared to resign as premier.
Miller said Bush’s actions this week had shaken the financial industry to its very core, damaged Cayman's international reputation and created further instability and division in the community.
“Bush should be asked to step down as finance minister. I call upon all right-thinking members of the business community, Caymanians from all cross-sections of society and those of us in political leadershipto demand of Mr Bush that he removes himself from the Finance Ministry, to prevent further damage to the Cayman Islands,” he added.
“For the minister of finance to be allowed to make such an unnecessary and reckless departure from our traditional revenue sources to a form of income-determined tax is in my view grossly detrimental to this country and he should be required to re-assign the Finance Ministry,” Miller said, calling for the financial secretary to resign as well for allowing such a shift in policy. The MLA pointed out that with no definitive statement from him saying that he did not support this income-based fee, it had to be assumed he agreed with it.
The MLA further stated that, along with the UDP's incompetence in managing the country's affairs and the continued wasteful spending, the premier could still find the time and money to travel to Jamaica this past weekend.
“While I congratulate Jamaica on its 50 years of independence, I find it difficult to accept that our premier had to be there at such a crucial time in our budget preparation,” he said.“Similarly, the minister of sports can find the time and money to take a big entourage to London to attend the Olympics, while his government has plunged the country into uncertainty and anxiety. This incompetent UDP government needs to get serious and produce a credible budget, instead of making ill-conceived policy announcements to stir up controversy while they jet around the globe as distractions from the real issues,” Miller said in an official statement.
See full statement below.
Mothersill missing from starting blocks
(CNS): Injury appears to have struck another Cayman Islands athlete at the Olympic Games as Cydonie Mothersill was a no show on the track in her heat for 200 metre heat on Monday (6 August). The Commonwealth Champion was drawn in lane four but did not appear for the race. Her heat was won by the USA sprinter Camalita Jeter. Although she has been suffering from a persistent injury so far there has been limited news from Londonbut it appears Mothersill was concerned about the injury as she prepared for the race. On Friday, Cayman’s star athlete told the CIOC reporter that she had blocked all her injury problems out of her mind and was “raring to go”
As the 34 year old, who was likely facing her last Olympics, did not start the race on Monday she will now not compete in the semi-finals on the world's biggest athletic stage.
This comes on the heels of Kemar Hyman’s bad luck on Saturday when he was also a no show at the semi-finals of the 100m when the runner felt some pain just before the start of the race.
Check back to CNS for more on this story later
Alden: Damage already done
(CNS): The leader of the opposition has joined a growing group of people who fear that the damage may already have been done to Cayman’s reputation over the proposed implementation of the payroll tax and general uncertainties surround the UDP government’s inability to balance the public books. In the wake of the latest discrepancy between a group of business leaders claiming the premier has withdrawn the proposed expat tax and the premier’s denial that it is off the table, PPM leader Alden McLaughlin said he hoped Wednesday evening’s meeting would provide some clarity over what has already proved to be a harmful proposition.
“The PPM has decided to postpone the protest meeting against the tax for this evening in light of the weekend’s events but I have grave concerns about the uncertainty between the business group’s statement and the premier’s own comments about whether or not the damaging payroll tax is still under consideration,” McLaughlin told CNS Monday.
The opposition leader said it was unbelievable that during the last year of the United Democratic Party’s administration it could not produce a budget.
“That can only be inattention and sheer incompetence on the part of the premier in his role as finance minister,” McLaughlin added. “We look forward to this evening’s meeting, where we hope some clarity will be brought to the matter and government will move swiftly to produce a credible budget. This whole situation has done immense harm toCayman’s already damaged reputation and the longer the uncertainty prevails the more it will further harm not just the reputation but the economy as well.
The PPM leader said this position need never have arisen if the premier had begun to address the operational deficit problem from the start and listened to what the UK has been saying, as well as the local business community, and above all taken heed of the Miller-Shaw report and what it said was wrong with Cayman’s public finances.
“If he had listened, the economy wouldn’t be at this point,” McLaughlin said. “But he has persistently claimed that he is turning the economy around and produced pretend budgets for last three years and now, unfortunately, the chickens have come home to roost.”
Turning his attention to the latest news Monday morning that the premier had written an open letter to Bermuda's premier, Paula Cox, which had appeared in the Royal Gazette this morning, the opposition leader said he was astonished.
“I am quite frankly shocked and embarrassed that the premier of the Cayman Islands would write what is such a personal affront to the premier of another overseas territory and to compound it making it an open letter,” he said. “I am not sure what he is trying to achieve by creating ill will between the overseas territories but he needs to get beyond the point where he believes every comment and criticism is about him personally and then resort to insulting the source,” he added.
Storm watch over for CI
(CNS): Update: Monday — The Cayman Islands government discontinued the Tropical Storm Watch for Grand Cayman on Monday morning as Tropical Storm Ernesto was forecast to pass about 216 miles south of Grand Cayman early this evening. However, local forecasters warned that on its current path, rain bands associated with the storm would affect Cayman Islands until tomorrow afternoon. Government opened for business as usual Monday when it was clear the storm would pose no real threat locally. Cayman can however expect cloudy and overcast conditions with frequent showers and thunder until tomorrow.
South-easterly winds of 20 to 25 knots and higher gusts will continue and boat captains were warned to keep vessels in safe harbour as seas will be rough with wave heights of 6 to 8 feet especially along the east and south coasts. Weather models forecast 1.00 to 1.50 inches of rainfall accumulation from Monday morning through Tuesday afternoon.
This may lead to flooding of low lying areas and all residents should continue exercise caution.
On Monday morning TS Ernesto was about 190 miles ENE OF the Nicaraguan and Honduran border
about 405 miles east of Isla Roatan. Winds had increased to 65 MPH and Ernesto had slowed down to 9 MPH.
This general motion is expected to continue for the next 48 hours, the NHC in Miami said but the storm may increase slightly in forward speed. Strengthening is forecast and Ernesto could become a hurricane by tonight with further strengthening before it makes landfall. Tropical storm force winds extend outward up to 125 miles from the centre.
Meanwhile, TS Florence had dissipated and become a post tropical remnant low with winds of 35mph which were expected to fall as the weather system was expected to weaken further over the next couple of days.
Visit the Cayman Airways website for information on the schedule.
Hazard Management Note: It appears that some people who are visiting Cayman Prepared are finding an old version of the site. According to Computer Services this is because they have the old site bookmarked, or in their history or in their cache. If they retype www.Caymanprepared.ky into their browser they will bring up the current version of the Cayman Prepared website.
Expat tax: 10%. A sense of community: priceless
There are many of us civic-minded, gainfully employed, young Caymanians who would gladly part with a percentage of our hard earned salaries if we could be guaranteed two things: 1) that quality benefits, such as education and health care, would become universal, and 2) that the proper system of checks and balances would be implemented to ensure accountability in the way that our money is spent.
From where we stand, however, all efforts that are made to bring about accountability and transparency are met with outrage, disdain and even legal threats. As citizens, when we attempt to engage in conversation and question a policy decision, seek clarification as to how decisions were arrived at, or even attempt to explain why we disagree with a particular proposal we are belittled, ridiculed and at times even bullied by the very people whose six figure salaries we pay.
We are dismissed with a condescending “little girl you’ve had your turn”, the way a parent lets a child know that s/he has been humoured long enough and it is now time to let the adults get back to their important business.
Since the announcement of the introduction of the payroll tax for work permit holders was made last week it has not ceased being on the tip of everyone’s tongue, as it seems everyone has an opinion on the matter. If ever there was an opportunity for a true nation building exercise, where everyone who resides here is able to engage in meaningful and thoughtful dialogue — and perhaps even problem solving — this could have been it.
What we’ve found instead is that we’ve been stripped of our common humanity and sent to our respective “corners” as the tired arguments of Caymanians vs. Expats have breathed a new life, acquired a worrying new momentum, and claimed centre stage — redirecting the energy that would be better served in finding a solution into new, more distasteful ways of tearing down our fellow men.
People — human beings — live here, not nameless, faceless aliens whose existence and value is based on the colour and issuing country of their passports. These people are our neighbours, co-workers, fellow churchgoers, and even friends. We may not always know one another’s names but we recognise faces. There are no strangers here.
We are constantly reminded that we live in a democracy, yet our actions of late have been completely contrary to that very notion. We may not always agree, but it is our democratic right to express our opinions free of intimidation and without fear of repercussion to our personal safety and that of our families. That is basic human decency.
The Caymanian woman who spoke during Wednesday’s meeting stating her view that it was unfair to ask only one sector of our community to contribute more and not another, was dismissed by the Premier as a “little girl” who had had her turn, and then dismissed by another Caymanian woman, who in a rather aggressive manner attempted to put her in her place by telling her that she had not built this country but had “found this country built”.
What followed is what is of importance: instead of addressing the latter speaker, the Premier chose to chastise the first speaker and others who clearly held the minority view at that event to “be careful” of how theyask their questions so as to not stir up the “passionate” crowd.
If our elected officials did more than pay lip service to the notion of unity, someone, anyone from the head table would have stood up and defended that woman’s right to express her opinion freely and without intimidation. Leadership is not about doing the popular thing or the easy thing but the right thing.
Yet no such fortitude of character was displayed as they all sat silently. In that silence the official blessing was given, condoning the perpetuation of this destructive, confrontational, and hostile tone. Here’s the thing about blessings and tones: neither is confined by four walls and so have seeped into the greater dialogue, as was evidenced by the emboldened remarks made on the radio the next day.
For that we should all be ashamed.
From its inception this community “enhancement” fee has served to do the exact opposite of what it intended. It has us turning on each other in all possible combinations: as Caymanians vs Expats, Caymanians vs Caymanians, and Expats vs. Expats. The impact will be greater than stains to our reputation abroad, and we will only truly understand what we have done when we hear it coming out of our children’s mouths.
Tax us, don’t tax us; tax them, don’t tax them … the outcome no longer matters. The damage has already been done, and we have all already lost.
More proposals made as anti-tax rally delayed
(CNS): Following news over the weekend that the premier may be reviewing his plans to introduce direct taxation on foreign workers' earnings, the rally against the proposal by Independent MLA Ezzard Miller, the opposition party and the Facebook group has been postponed. Caymanians and Expats United Against Taxation and the opposition said they will all be waiting to hear what the premier says at his planned Mary Miller Hall meeting on Monday evening. The social media group has already submitted a number of alternatives to his office and is continuing to work on several more.
The founders of the Facebook group spent the weekend working on potential proposals after canvassing many of their members for ideas. Casey Goff (pictured above) told CNS that after the unexpected announcements over the weekend the group rushed to pull together the ideas that have been examined and produce a document, which is much shorter than originally planned but which could be discussed at the Monday night meeting.
“As a consequence of this, we have been unable to complete the list of cost savings measures which we would like to present,” said Goff, adding that the group would continue working Monday to pull more credible proposals together.
So far, the group has proposed a number of measures which they claim could raise more than $83 million. Echoing suggestions made in the past by the business community and a number of other viable options, the group's ideas add to a growing list that has been submitted by a cross-section of the community from North Side MLA Ezzard Miller to Don Seymour, one Cayman’s most successful local business owners. (See early proposals below).
With all eyes on the Mary Miller Hall and the goal of meeting McKeeva Bush’s invitation of a viable alternative, thoughts of protesting against the proposed payroll tax have been temporarily shelved in favour of finding solutions, the group said. The opposition and Miller said they had suspended the planned collaborative rally with the Facebook group set for Monday in Heroes Square to wait on what the premier had to say this evening.
“The postponement is as a result of developments over the weekend and the government’s apparent agreement to withdraw the payroll tax proposal and to hold a public meeting on Monday 6th August to announce alternative revenue measures,” the opposition said in a short statement. “Once details of the Government’s new plans are known, the PPM and MLA Ezzard Miller will determine whether to reschedule the planned meeting.”
It is not at all certain that Bush will drop his plan to impose a 10% tax on expatriate workers earning more than $36,000, as he says the UK wants a budget surplus of $76 million. The budget currently waiting the nod of approval from the Foreign and Commonwealth Office contains the proposed tax and suggests government can raise some $50 million through its implementation.
This is the sum that Bush now says he will need to raise in order to withdraw the tax and replace it with another sustainable revenue source. However, critics of the payroll tax have already pointed out that the proposal is very unlikely to raise the projected $50 millionfor a combination of reasons.
With only around $5,000 people earning $36k and above, many of whom are likely to be in a position to find ways of lawfully avoiding paying the tax, it is unlikely to deliver that much cash to government coffers. Others may also opt to drop their salaries marginally to fall below the threshold to avoid being caught in the new tax net which will be levied at 10% immediately.
Those earning $35,999.99 will not be taxed, while those earning $36,000 will pay $3,600 each year, which would make a drop in salary for anyone earning up to $39,000 worthwhile.
Those opposing the tax have also pointed out the flaw in the government’s position that this method of raising revenue would be sustainable, since the group of workers the government has elected to target is the most transient and the one most likely to leave.
Fixing Cayman’s financial problems
(First published 2009) Over a year ago I wrote that Government and the private sector should don their rain gear as the global financial crisis started to bite in Cayman. People said I was being a Cassandra. Nearly ten years ago, I wrote that Cayman’s revenue base was too narrow to sustain its development and the needs of a growing population, certainly not in a down economy. I recommended a modest annual property tax specifically dedicated to building and maintaining the infrastructure.
I also recommended that Cayman should develop a ten year plan for independence (a discussion for another day). People said I had truly lost it with these two suggestions. And now we are in the perfect storm, with the UK running interference and no real progress with long term solutions.
Earlier Governments wisely put in place mains water supply, sewage (but as yet only for part of the Islands), new airport and hospital and mandatory health insurance and pensions. But we then lived on borrowed time by deferring investment in roads, schools, port, runway extension and waste management. The previous Government decided to build the roads, schools and a new Government building simultaneously and without proper long term funding/financing for these projects.
Also, over the past few boom years, Government operating expenditures troublingly grew as a percentage both of revenue and GDP. Paradoxically, the Ivan disaster produced a huge inflow of overseas insurance and reinsurance money and (even with the duty waivers and reductions) the Governments coffers filled with import duties on (re)building materials and replacement equipment and goods of all kinds. This inevitably tailed off. Then the global crisis hit and our two main economic drivers, tourism and financial services, stopped expanding and then slid backwards. Real estate, construction, support services and consumer spending all suffered. 2009 Government revenue suddenly sank well below projections, yet Government expenditure continued unabated.
Voters everywhere continually demand more and better services, all too often from their Government. And politicians promise to deliver them. So either we stop demanding or we (not just others) have to pay for these services. And there are indeed vital projects still to be undertaken here. The most pressing (and maybe the most expensive) is waste management and the current landfills in particular. Even the most optimistic realtor, developer and “no new taxes” lobbyist must be aware that the south end of Seven Mile Beach, Camana Bay and the bypass stretch are exposed to a potential toxic disaster (air pollution already and soil and water pollution that may be happening unseen underground). What price tourism, real estate and the North Sound if that occurs (and the crime wave and poor underresourced policing continue)?
There are some things we should stop doing. First, bashing the UK. This may play well locally for a time but is unproductive. Second, saying we just have a short term cash flow problem and all will be well if we can borrow some cheap dollars to keep us going until the boom times in tourism and the financial services industries restart. Those times may be a while coming (and we must ensure the right platforms to encourage these key industries), and the traditional revenue streams from these industries will likely be insufficient for the long term. Third, saying we just cut Government expenditure, eliminate waste and abuse in Government services, downsize the civil service and improve civil service performance. Steps must be taken (the civil service and statutory authorities are in the aggregate far too large a percentage of the total work force), certainly to freeze the expansion, but it will be very hard in reality to turn the clock back (just count the votes).
Fourth, saying that privatization and public/private partnerships and private finance initiatives are the solution. There are some sensible options, but these are not sufficient to handle the problems. Fifth, saying that our ratios of debt and debt servicing costs to GDP are and will be well in line with other countries. This is misleading if most of that GDP is off limits as a source of Government revenue, i.e. we are not prepared to tax it directly! I suspect Moody’s may not have taken this into account in their recent rating confirmation of Cayman. Sixth, parroting “do not raise taxes in a recession”. This comes from the same people who during good times say “do not raise taxes, you will stop the boom”. Lastly, painting this as a Caymanian-non Caymanian issue. We are all in this together.
We should not ape the fiscally irresponsible behaviour of the US and the UK. Fortunately, we cannot “print money” and flood the market with CI$ debt that we cheapen by devaluing the currency (since Government borrowings are essentially in US$, we leave the Fed to do that for us!). We need to reinstate sound Government finances. I believe this is possible but contributions are required from the entire resident community and those invested locally. The self-interested “nail the other guy, he’s not at the table so he can be lunch” is very unhelpful. Suggestions should be constructive with a willingness to compromise for the greater long term good.
We now have deficit figures for the last fiscal year (disturbing even if predictable), an optimistic proposed budget for the current fiscal year and UK in-principle and conditional consent to a portion of the loans requested (as yet we do not know which financial institutions have made firm commitments to fund the loans). The UK still requires, not only satisfactory short term fixes, but also a long term plan for sustainable revenues/financing and expenditure cuts/containment to match (phased implementation should be possible). In our own interests, we should also set clear priorities.
The short to medium term solutions outlined so far in the proposed budget call for swinging increases in the usual indirect fees and duties (e.g. import duties – effectively our sales tax, financial services and company fees, work permits etc.), a 2% levy on money transfers through licensed money services companies (but not through banks) and various other miscellaneous fees, a new annual business premises fee payable by the tenant of 10% per annum of the rent (with the concession that no such fee is payable on leases in force on which stamp duty has already been paid), one off savings (e.g. deferrals and perhaps cancellations of services and projects) and windfalls, civil service/statutory authority hiring and remuneration freezes, disposition/refinancing of Government assets/liabilities etc., and improved efficiencies, performance and collections (delivery is another question).
But I fear that, given thereis little hard evidence of sustained cuts on the expenditure side and of specific long term funding/financing of capital projects, there needs to be detailed study followed by action that broadens in the longer term the revenue base through meaningful new levies (implemented in a sensible staged manner) that are not so dependent on perpetual boom times and buoyant consumption. And this is not simply because the UK tells us this. If we fail to do this, we are likely only kicking the can down the road for a short while.
Taxes should be fair, have the lowest adverse impact on economic activity and should be cost effective to collect and enforce. There are two new proposals in particular that do not meet the tests.
The proposed 2% levy on money transfers through money services licensees is unfair as it hits those at the bottom end of the economic scale (who have also been abandoned by the traditional banking system … perhaps the retail banks will be good community citizens and now rethink this poor attitude). It also sets a very ill advised precedent (thin edge of the wedge) as it will be seen as a tax on cross border fund transfers, an anathema to the global financial industry. Finally, it can only be short term, as in a few years, it will be uncollectible as electronic money transfers by cell phone will be possible (this is happening elsewhere already).
The proposed 10% business premises levy on rents (to be an obligation of the tenant but, it appears, to be collected by the landlord and remitted to the Government) fails to meet all the tests (the last one in particular) and is potentially open to nonpayment and fraud, in the same way as stamp duty, health insurance and pension contributions. And in the current climate, I fear that it may finally drive under many small businesses that are already struggling, if they have lease renewals coming up. Also, the new 10 % annual levy may adversely impact one of the key things Cayman needs to do to get the economy going again; that is to encourage greater economic activity here with new financial businesses establishing physical offices with people living and working here in and making real decisions.
My concern is that this new in-your-face line item (combined with the ever increasing work permit fees) in the budget of a fund or investment manager considering a physical presence here might be a turn-off. To put this in perspective: currently a 5 year lease at an annual rent of US$250,000 carries upfront stamp duty of 5 %, i.e. a one off US$12,500 approximately; under the new regime, no stamp duty but an annual tax of 10%, i.e. an annual US$25,000, and thus US$125,000 over the five years.
I also question whether this new levy will result in tenants buying or building their own premises. Anecdotally, the response seems negative. The market is a lot more complex than that. First, many smaller tenants are in no financial position to buy or build. Second, in Cayman other than major retail banks (and most already have their own bricks and mortar), financial services and professional firms typically do not own their office premises as it limits their flexibility for growth (or downsizing) and ownership causes succession problems and more for partnerships.
Third, major tenants are usually already tied into long term leases. Fourth, I wonder if the existing landlord/owner lobby has thought carefully enough about the implications in the unlikely event of their major tenants constructing their own buildings and vacating their current premises. A whole lot of empty buildings, so be careful what you wish for.
I must emphasise that new taxes should only be imposed if and to the extent that the various short-medium term measures outlined in the budget fall short or are not sustainable. Applying the three tests outlined above, I suggest for mature study and consideration three possible new revenue sources.
First, a modest annual community service charge on real estate dedicated to appropriate infrastructure and services (like waste management) and collected by the Land Registry (there can be exemptions for those who genuinely cannot pay and for low value properties, perhaps variable rates/bands depending on the usage and value and a credit/reduction of the upfront stamp duty already paid or payable). Second, a levy on electricity, telephone (including prepaid cell phones), TV and water bills collected by the utility companies. Thirdly, and very reluctantly if all else fails, casino licences (collected by a new Gaming Board). These could together raise a stable CI$45-CI$75 million annually for Government fairly, with low adverse economic impact, at a reasonable cost and with a high collection rate.
This article is an expanded version of the article that appears in the October 2009 issue of the Journal.