Review to weigh taxation, funding
Leader of Government Business McKeeva Bush confirmed late last week that two individuals have been recommended to conduct a revenue study for the Cayman Islands government.
The study, ordered by the United Kingdom’s Foreign and Commonwealth Office earlier this year, is expected to review various options to increase available funding for the local government. The terms of reference for the study were due last week.
The UK has been lobbying heavily for its overseas territory to consider some form of direct taxation, such as income or property taxes to bolster its coffers.
Mr. Bush’s government has so far avoided those measures, largely by enacting a series of new or increased fees on Cayman businesses and residents including rising customs tariffs, work permit fees, and finance industry levies, among others.
Before the Legislative Assembly last week, Mr. Bush admitted that government had considered the implementation of what amounted to a payroll tax to help it through the current year.
‘At one point, we thought we had an agreement for a community enhancement fee, which was really a payroll fee,’ Mr. Bush said. ‘But the financial community said ‘no, no, no’.’
‘We were in – as the old people in West Bay say – a pucketary (colloquialism meaning a ‘mess’ and sometimes pronounced ‘pugetary.’),’ Mr. Bush added.
The community fee proposal as discussed at the time would have been assessed to expatriate workers making at least $3,000 per month, and to Caymanians making at least $7,000 a month.
The government eventually got out of its ‘pucketary’ – at least temporarily – by proposing a host of new fees included in the passage of the current 2009/10 budget.
However, Mr. Bush recently warned that, if government does not meet its expectations for increased revenues through the new fee structure, other measures may have to be taken to balance the country’s budget.
Asked Thursday whether he thought the community service charge was a dead issue, Mr. Bush said he believed it was, but indicated that government would await the results of the independent revenue study.
As long as Cayman stays within certain financial operating requirements, it can continue to borrow. However, if government debt levels get too high, or if it’s operating expenses exceed revenues, or if it doesn’t maintain enough cash in the bank, the UK can step in and prevent Cayman from borrowing further.
Mr. Bush said last week that Cayman needs to avoid that at all costs.
‘There are forces both inside and outside the country that would like to see Cayman dragged down,’ Mr. Bush said. ‘I didn’t say the UK, but I do know that their modus operandi is to do away with offshore financial services.’
UK Foreign and Commonwealth Office Parliamentary Under-Secretary of State Chris Bryant opined in a letter to Mr. Bush last month that Cayman’s decision not to introduce any form of direct taxation was ‘a mistake.’
Mr. Bryant also expressed concern regarding some of Cayman’s asset sale plans, which include the divesting of the new government office accommodation project and the sewage plant – from which government expects to get $70 million in the current year.
‘No longer owning these assets will also have implications for future operating expenditure,’ Mr. Bryant wrote. ‘These cost implications need to be addressed for future years’ budgets.’
Mr. Bryant’s position on expanding Cayman’s tax base was echoed in last week’s report from Michael Foot, commissioned by the UK Chancellor of the Exchequer last December.
Mr. Foot identified Cayman as one of the UK overseas territories that had grossly overestimated government revenues and that the Islands should look to diversify government revenues.