CIREBA board calls payroll tax ‘fiscal suicide’

CIREBA Board main

The Cayman Islands Real Estate Brokers Association has joined Forbes Magazine in calling the proposed payroll tax on work permit holders “fiscal suicide”. 

In its statement issued on Wednesday, the CIREBA board was critical of the thinking behind the tax proposal, which would require all work permit holders earning more than $20,000 to pay what Premier McKeeva Bush has termed a “community enhancement fee” of 10 per cent of their salary or wages. 

“The foundation of the lunacy surrounding this approach lies in the fact that this attempt to tax and spend our way out of financial trouble has been tried repeatedly over the course of history and failed miserably each time,” the CIREBA board stated, adding that Cayman should learn from the history of other countries that made a similar mistake. 

The CIREBA board listed a number of negative aspects of the tax proposal. 

“From a marketing perspective we are giving up the single-most important value proposition that the Cayman Islands has to offer our investors – no direct taxation in a world where taxation is on the increase everywhere else,” the statement said. “In doing so we will have lost the primary advantage that distinguishes Cayman from the rest of the world and fallen directly into the hands of our competition.” 

Like other entities that have come out in opposition to the proposed tax, the CIREBA board said that once a system is created to collect payroll taxes, investors will not trust the rate would remain at 10 per cent or stay confined to work permit holders. 

“[Investors] will not trust or believe it will stop there,” the board stated. “Once a tax system is put in place, it invariably becomes the thin end of the wedge, and taxes never go down in places where such systems have been instituted. Any investor with a rudimentary understanding of history will see that this 10 per cent tax is just the start of bigger taxes to come. The spectre of higher taxes and therefore lower returns cannot possibly attract inward investment.” 

The CIREBA board said that since Premier McKeeva Bush’s announcement that the government intended to impose the expat payroll tax, Cayman’s real estate industry was already seeing “numerous deals either put on hold or cancelled”.  

“Apart from the certainty that this will reduce government income in the short term, it could very well lead to an outward exodus of tax sensitive investors to other jurisdictions, leading to reduced income in the long term as well,” the board stated. 

Another possible negative effect of the proposed payroll tax involved the relations between Caymanians and expatriates, the CIREBA board noted. 

“Starting with the most recent ill-advised stamp duty law, which for the first time created differing rates for Caymanians and for expats, we have begun to encourage divisiveness between two groups who have, hand-in-hand built, the Cayman Islands into what it is today,” the board stated. “This is a sad and totally unnecessary development.
Foreigners and expats will eventually take affront to this and leave. And once this tax is in place, and those taxed decide to leave, [tax] will be applied to Caymanians, and at an ever increasing rate.” 

CIREBA’s board noted that it was overspending by government that created the budget problem in the first place and that the solution wasn’t in imposing new taxes.  

“The problem of bloated inefficient or unnecessary government is never going to be solved if we give the politicians a new and unlimited source of funds to continue to pay for it,” the board stated. “This will make the country further dependent upon government for jobs and eventually entitlements (handouts). In that way this is actually a prime re-election tool for any Government, which survives its implementation.” 

The board noted that there would be several other consequence of implementing a payroll tax. 

“If payroll tax is implemented, all Cayman companies will have to keep proper, and most likely, audited books. Otherwise, there would be no way for the government to really assess what employees are paid,” the board said. “This will cause the cost of business to go up considerably for those compliant with the law. But, as everyone knows from the compliance levels with respect to the Pensions and Insurance Laws, there will be large numbers of companies that ignore the law. This law is so expensive that it will likely cause even more employers to go rogue. Just like in other tax jurisdictions, you will see employees working “under the table” and an increase in illegal expat workers. There is no way Cayman’s justice system will be able to keep up with the workload.” 

The CIREBA board said government must be run like a business. 

“In times of prosperity it can expand, still ensuring it keeps a reserve fund for bad times,” it stated. “In bad times it must contract and reduce its size and expenditure to get back to a break even level. Those are basic economic concepts. Every Caymanian business, which has survived from 2008 – 2011, has had to do this.” 

The proposed tax is seen as something that will cause major and lasting changes in Cayman by the CIREBA board. 

“It is a paradigm shift in our country’s approach to funding its liabilities,” it said. “And if enacted, it will forever change the way we do business in Cayman. To pay for failed policies by destroying the very economic engine which provided the prosperity to which we all strive to return is an absurd response.”  

 

Forbes article  

Forbes Magazine, a leading US business publication, carried an article online on Tuesday that similarly equated the implementation of a payroll tax as “fiscal suicide”. 

Contributor Daniel Mitchell said that a good fiscal policy would have the private sector growing faster than the government and that “bad things happen when governments violate this common-sense guideline”. 

“In the case of the Cayman Islands, the “bad thing” is that the government is proposing to levy an income tax, which would be akin to committing fiscal suicide,” Mitchell wrote. 

“So why are the local politicians considering a plan to kill the goose that lays the golden eggs?” he asked. “For the simple reason that they have been promiscuous in spending other people’s money.” 

The article published a chart which showed that Cayman’s government spending had climbed twice as fast as economic output since 2000. 

“Much of this spending has been to employ and over-compensate a bloated civil service,” he wrote, adding that Cayman was “sort of a Caribbean version of California”. 

“In other words, the economic problem is that there has been too much spending, and the political problem is that politicians have been trying to buy votes by padding government payrolls.” 

 

Tax protesters  

The grass-roots cyberspace protests to the propose tax continued on Facebook and online forums on Wednesday, even though one actual demonstration was cancelled.  

The Caymanians and Expats United Against Taxation group called off a protest it had planned to hold at the meeting of McKeeva Bush Wednesday in West Bay, citing intimidation and threats,  

However, founder of the group, which was set up on Facebook, Nick Pitman urged members to nonetheless attend the meeting about the controversial tax to listen to what Premier McKeeva Bush had to say and to ask questions. 

The group has rescheduled its protest action to Monday evening in George Town.  

On the group’s Facebook page, Mr. Pitman said early on Wednesday afternoon: “Although we made a decision to postpone the protest itself because of the intimidation members were facing and the concerns raised by some of our members, we are still keen to see as many people in our group as possible attend this critically important meeting this evening [Wednesday], where hopefully we can be more accurately informed about the precise nature of this discriminatory tax the premier intends 
to impose.” 

Earlier, Mr. Pitman, said the protest was being postponed because there had been a “disturbing number of personal attacks on myself and others” in the group and that civil servants who wanted to attend the protest had been threatened. 

In his posting, Mr. Pitman told supporters: “Your attendance [on Monday] is more important than ever as you are leading the progression of Cayman politics and taking power from the old guard and back to the people.” 

He added: “Bring your friends, placards, banners, and a nice non-aggressive attitude. No shouting – smiles and refreshments are welcome. Let us show our united front, we are not swayed by threats or slander. Let’s show how much we love Cayman, and how we feel after rollover, this is killing this beautiful place we call home, hurting the very people Mr. Bush claims to protect.” 

Another group, the Truly4Cayman Coalition said they also planned to attend the meeting in West Bay and urged the members of the Caymanians and Expats United Against Taxation to join them.  

That group, which consists of members from the Concerned Citizens Group, West Bay Action Committee, Keep Bodden Town Dump Free and the Save Cayman Group, in an emailed announcement to media outlets Wednesday morning said they would be at the Sir John A. Cumber school hall to “welcome the Honourable Premier to his meeting about his proposed ‘Community Enhancement Fee’.” 

The group said it was confident that the Royal Cayman Islands Police Service would protect members’ right to assemble. 

The notice from the group read: “Mr. Premier, you may be able to scare some of the people, some of the time, but not all of the people all of the time.” 

It called on the members of the Caymanians and Expats United Against Taxation “not be intimidated, stand your ground” and join the Truly4Cayman Coalition Group at the West Bay meeting. 

The Caymanians and Expats United Against Taxation’s demonstration will be held outside the courthouse and the Legislative Assembly at 5.15pm, Monday.  

Leader of the Opposition, Alden McLaughlin, said he and independent North Side MLA Ezzard Miller planned to hold a meeting in George Town addressing the proposed imposition of a 10 per cent tax on expatriates earning more than $20,000 a year following the protest action on Monday night. More details on that meeting would be available later, 
he said. 

CIREBA Board

The CIREBA board, First Row: Jan Tomkins – Director, Jeanette Totten – President, Heidi Kiss – Director, Tony Catalanotto – Director Back Row: James Bovell – Director, Michael Day – Vice President, Jeremy Hurst – Director/Past President, JC Calhoun – Director
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1 COMMENT

  1. I also work in the property industry and the damage has already been done. It was never seen as a possibility that the Cayman Islands would introduce direct taxation and now even if this farcical ever changing idea of a desperate man trying to cling to power will scare investors for a long time into the future, even if it never gets passed. Numerous deals have already fallen through costing the government hundreds of thousands in lost revenue and this is the tip of the iceberg. End this lunacy.

  2. Perhaps the scariest thing in this article is that people were threatened and intimidated to not attend.

    One would expect this in China or Syria, but not in these peaceful and beautiful islands.

    Is this where Cayman is headed? No one will tolerate this when there are alternatives open to them.

    There is an old saying, Clogs to clogs in three generations

    (Clogs are wooden shoes worn by the poor in the past).

    The meaning is that grandfather came from poverty and started a successful business. His son developed it and made the family wealthy.

    The granddchildren however never experienced poverty and had everything handed to them on a plate.
    They lost everything.

    Premier Bush is going to kill the goose that laid the golden egg.

  3. You’re quite right Apprentice, CIREBA would call any fee a tax, but Big Mac is calling this tax a fee, so all’s fair here, don’t you think?

    Seriously though, it’s too bad CIREBA didn’t provide more concrete details on the damage already done, as one Re/Max agent did a Letter to the Editor.

    What I find interesting is that Big Mac himself is an agent with close personal interests in the ownership of brokerage. He must know exactly what the damage is, and yet he continues.

  4. In my opinion Truly4Cayman Coalition should stay out of this and don’t be influenced by some of their members. They need to focus on the issues they are focusing on and let this expat fee deal with itself. If they continue I’ll no longer give them my support and I know many others won’t either.

  5. Who do these faces represent? Expats who make thousands in commission from sales.

    People come to this country and try to fool the people. You cana’t fool the premier because he is in the business himself. So stop telling lies and go pose for Victoria Secret or
    some other high end clothing line. Can’t believe what people will do to keep from obeying the law.

    Well as we all predicted, you won’t scare Mr. Bush,
    he’s the premier. Not you.

    Pay the 10% payroll fee.You are using more services than Caymanians as you already outnumber Caymanians 3 to 1 so pay your way.

  6. @ BaBa Boom

    How can you possibly claim expats make more use of services than Caymanians?

    Expats are legally banned from sending their children to government schools, yet they pay for them.

    Expats receive no social security or other benefits, if they don’t have a job they must leave the island.

    They must pay for all medical treatment they receive.

    Please reply and state exactly which service they make more use of.

    And your population numbers are wrong. There are NOT 3 times as many expats as Caymanians.
    In 2009 there were 55,000 people living in the Cayman Islands, 23,000 were non-Caymanian.

    http://www.eso.ky/pages1.php?page=populationandvitalstatistics

    For your numbers to be correct there would be 13,500 Caymanians and 40,500 expats.

    And while looking at the census results look at the Dependency Ratio on page .04.
    In 1970 only 10,000 people lived here and 86% of the population were dependent, either children, homemakers or retired. Only 14% of the people living here had jobs. Menfolk left and sent money home.

    By comparison by 1999 only 34% were dependents, the other 66% had jobs. What happened to create those jobs?

    You seem to be missing the point of the article. The goverment collects Stamp Duty of between 6 and 7.5% on the value of all sales.

    http://www.caymanlandinfo.ky/tabid/110/Default.aspx

    On the sale of a one million dollar condo the government collects 75,000 dollars.

    In 2011 the Cayman Islands collected over 37 million in CI dollars in Stamp Duty.

    http://www.caymanlandinfo.ky/Statistics/2011Statistics/tabid/221/Default.aspx

    Like it or not, this is a big number. If real estate sales fall and less Stamp Duty is collected, the government will have to extract that money from someone else.
    Probably from you.

    Or are you planning to force people to buy homes here?

  7. @old diver, I think Macs real estate company only takes commission on land re-zoning or accepting Ritz Apartments, maybe the odd Dart commission. Besides I feel it wrong to call it his real estate company, I am sure it belongs to his wife and he as no involvement whatsoever.

  8. Cireba is just regurgitating what the Forbes article wrote. 1000 miles away, the writer of that article can make calculations and assertions about Cayman but who will be the one to tell people in the civil service that they are no longer needed? Not him. Who will have their house repossessed? Not him. Bottom line is that if government reduces the amount of civil servants, it will increase the amount of people dependent on government for assistance/welfare.

    Cireba is a joke, made up of mostly foreigners who have gotten rich off of selling Cayman to other foreigners and reinvesting that money into multi-million condos which the average person could not afford at the same time keeping Caymanians out of the industry. They call making 100K a bad year.
    Tell me this, how does a waiter become a real estate agent. Oh he has experience in sales. What a joke. At the same time young Caymanians with marketing degrees cannot find a job at a real estate firm.

    In what other country does the expat community have a say in what laws are implemented? Only in Cayman and that’s because Caymanians are outnumbered in our own county. This expat fee is just what Cayman needs even if its hurts Cayman in the short term. We need a disincentive to hiring expats over educated Caymanians. We need a disincentive to the buddy system. We to reduce the amount of expats in Cayman and increase the amount of Caymanians in the work force.

  9. @ Beenie
    You just need to look at the membership list of CIREBA to realize how many Caymanians either own real estate companies or work for them.

    But again you are missing the point.

    You may think it good news if less real estate is owned by non-Caymanians.

    But if people stop buying real estate the government will collect less Stamp Duty.

    So they will have LESS money to spend not more. If they want to keep spending the same money they will have to extract it elsewhere.

    And if EVERY non-Caymanian leaves there will be no one left to tax BUT Caymanians.

    And just who will occupy all those vacant homes?

  10. Flat taxing all purchased properties and goods is a great approach to make everyone contribute. The greater the spending the greater the tax. I am all in on property taxes. Especially if the property is foreign owned and is used as a rental. 1000 dollars per 100,000 per year should get the budget back in order. Homes will still sell. If you can afford 1 million for a condo, you should be able to afford the 10,000/year tax. One less custom suit in the closet. People tend to be greedy. Without a financially stable government infrastructure, anarchy will follow. Trust me, no one will pack up and leave. It will be just as expensive back where they came from. People are under the impression that taxes are the enemy and the end of the world. Think of them as a way to maintain a safe, healthy paradise. It sounds like the Caymans are owned by the Republicans. I’ll stick with Obama.

  11. @confused

    According to Mac’s own wikipedia page he is described as a director and shareholder of the Cambridge Real Estate Company, although a citation is needed.

    http://en.wikipedia.org/wiki/McKeeva_Bush#Personal_life

    I have also heard that his wife owns the realty company, or is at least the majority shareholder. In my first comment in this thread I only said that Mac himself is an agent with close personal interests in the ownership of brokerage.

    If share-holding, a directorship, and marriage to the majority owner are not close personal interests, I would like to ask you to give me a better definition of close personal interests.

    (Dear Editor, I sure wish I could use quotation marks)

    In addition I had a look at the website for the Cambridge Real Estate Corporation. They look to be an active brokerage with everything you would expect, including current listings and recently completed sales.

    Given all of the above, and the published statements from CIREBA, and at least one Re/Max agent, Big Mac must know what happened to the property market in the last week.

    Mac is ignoring reality in favor of one last chance to appeal to Caymanian voters, so that he may continue as Premiere.

  12. CIREBA is not telling the truth.
    From May to October the sales are always down.
    No activity. Parents are taking family vacations, paying college tuition, expensive textbooks, other school supplies etc. As a matter of fact Real Estate
    Agents take their vacation during this down time.

    It is a deliberate ‘LIE to tell the public you just had 10 deals fall through. You people think Caymanians are stupid? The premier is in the business himself and so are others. so stop this misrepresentation. Stop misleading the public and learn to speak the truth. How can we trust you behaving like this? You should be ashamed of yourselves.

    Olddiver, you need to stop feeding into this lie yourself.It will not work and it did not work the premier knows better he’s a broker!

    Try something else!

  13. Please excuse the obvious borrowing here but THE WHOLE WORLDS’ WATCHING.

    In this climate of angst and distrust over discriminating tax regime and collateral release of pent up anger toward expats, why would any sane investor want to risk capital in a market full of uncertainty short or long term.

    Did everyone forget the 10 good reasons to invest in Grand Cayman?

    I don’t recall one of them being start taxing expats at 10% and if that don’t work tax everyone 10% and if that don’t work make it 20%.

    One thing I know for sure if you start a policy in this island of income taxation then you will have to change every piece of promotional literature ever written about Grand Cayman.

    Reflect how it is no longer Tax Free and how the Government discriminates between Caymanians and Expats when it comes to fair treatment, then we will see if the economy can sustain new investment.

    Consequently, If I were the managing director of a large financials company branched or headquartered here in Grand Cayman I would be very wary of where this is all going.

    If opportunity vacates this island so will the money chasing it! Then where will growth and taxes come from?

    Very disturbing.

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