The Cayman Islands’ economic activity and ability to generate income are entirely dependent upon foreign source income. Our financial industry services investment vehicles, which receive their funds from persons outside of the Cayman Islands, and our tourist industry services persons who earn their income in other countries and spend it in Cayman. Those two industries generate the vast majority of our economic activity.
The flaw in the argument that Cayman needs a sustainable revenue source such as this new tax is that the workforce from which the revenue is now sought is mobile. Unlike say the United Kingdom, where the vast majority of the citizens live and work in the country, Cayman employs people from overseas as the population is not large enough to supply the labour force required to undertake the tasks necessary. Additionally, many businesses have to outsource to compete. As soon as the tasks to be undertaken can be performed in other places at a more economical price and with less bureaucracy, the investment that comes to Cayman from outside to fund those tasks and the persons who perform them will be removed to other jurisdictions. The tourist industry works on the same principles: as soon as the costs exceed a given sum and the market product is no longer acceptable, tourism will move.
Cayman has been successful over the last 30 years because these basic economic principles were clearly understood by the majority of the population, and in particular by those in the Government. Over the last 10 years, however, some of our leaders have lost sight of those principles – or at least are unwilling to acknowledge them. We believe that irrespective of what revenue measures are proposed, unless there is a clear understanding of those principles, economic activity will decline substantially over the medium term – and with it, revenue. The standard of living of those who remain here will be substantially affected. At present, we believe that the measures proposed are counterproductive and do nothing to address undisciplined government spending and a Civil Service that is no longer affordable as presently structured, both of which are likely to undermine any prospect of solving government’s inability to produce sustainable budgets in future.
We believe that the only real long-term answer to the problem (beside cutting costs) is to put in place reasonable and pro-business measures to encourage those who service the financial industry on a worldwide basis in other jurisdictions to move their services to the Cayman Islands and to have a tourist product which is attractive to the target market.
The view of the Cayman Islands Law Society is that, for the reasons set out above, direct tax in the Cayman Islands is not sustainable over a medium term period. We therefore oppose the imposition of this measure. That said though, we fully understand the pressures being exerted on government to produce a balanced budget within a very limited timescale, and we are anxious to help as best we can. We would be happy to meet with government representatives whenever convenient to share our suggestions and otherwise assist it in any way we can to identify solutions to what we know is a difficult and urgent problem.
Cayman Islands Law Society