The Cayman Islands National
Investment Council has suggested a number of revenue or cost savings
opportunities it believes could improve government’s finances by $100 million
in 2010 alone.
Also last week, Premier McKeeva
Bush announced the possibility of a five-per-cent payroll tax.
Mr. Bush said the situation is now
at a point where something had to be done.
With the 2010/11 budget process imminent, Mr. Bush knows the inevitable can’t
be delayed any longer.
The government is faced with deciding
between the lesser of evils and no matter which path it follows, there are
going to be a lot of angry people.
On one hand, there is direct
taxation. Five per cent might not seem like a lot, but there are serious
ramifications of putting any direct tax system in place.
First, a small tax never stays
small. Once the collection system is established, the rate will only go up as
subsequent governments realise it’s the easiest way to fund their agenda.
Collecting taxes also requires expensive
government infrastructure, including many more civil servants.
Businesses will also have to develop
and administer costly tax reporting systems.
Not only will this thwart new business formation, some companies will
leave the Cayman Islands as a result.
Then there’s the issue of
compliance and enforcement. A payroll
tax would have to be collected and paid to government by employers. Given the history of that process when it
comes to pension and health insurance payments, collection rates will likely be
poor. Unless the government has the
political will to put those who don’t comply in prison – which we doubt – an
inequitably administered payroll tax is only going to cause animosity and anger
in the community.
On the other hand, there are the measures
recommended by the National Investment Council and the Miller Report. Some of those measures also have substantial
repercussions that could further disenchant the Caymanian people.
Although there is no easy answer,
we will say this: the government that is
in power when direct taxation is implemented will live in infamy in the minds
of the Caymanian people. Nothing will
change the way of life here more fundamentally than direct taxation, and it
should be regarded only as the last resort