Direct taxation a reality

It was said by some that the leader of the opposition Alden McLaughlin complained that the recent budget struggle between the UDP and the UK Foreign and Commonwealth Office has sank us further into colonialism. I suspect he means that because of the financial mismanagement of the last PPM government, the present Minister of Finance and the entire UDP administration, we now have less say in our internal affairs and specifically the decision of how much and on what to spend and invest our financial resources. But the UK government policies towards its overseas territories are in my humble opinion aimed first of all at protecting the internal and external interest of the Kingdom whether inside our outside of the UK. The fact that we are by law UK citizens or entitled to UK citizenship but also have our own local rights and responsibilities under the CI constitution, does not exclude us from the jurisdiction of the UK since our constitution is a UK document, which only allows us to operate within a framework the UK has designed for our governance. And when our local laws or policies stand in contradiction to the prescribed wishes of the UK, the UK can and will intervene to protect their sovereign interest as the recent budget fiasco demonstrated to one and all.

There are those like the Premier that have said that the UK is interfering in our internal affairs but the UK only interfered because the UDP government had taken us far outside the framework of fiscal responsibility agreed upon between us and the UK. This agreement is enforceable because it has legal standing. For anyone to suggest they will take the UK to court for interfering or obstructing is immature and suggests our present leader is out of touch with the reality of our colonial relationship with the UK and the specific intent and meaning of colonialism even when it has been redefined and packaged to suit 21st Century international ideological requirements.

The UK’s main concern of course is to oversee its territories in order to prevent the UK now or in the future from having any financial responsibility for the upkeep of its colonies that could result in any substantial drain on their treasury and thereby handicap their ability to pay for the needs of their metropolitan citizens. One can just imagine the political conflict any UK political party or government would face if their highly politically educated citizens were forced to give up benefits in order that their government financially maintained UK territories like the Cayman Islands that has for decades bragged of their wealth and financial independence. Or the criticism and political attacks the UK would receive from the international community if they did nothing to assist financially and maintain good governance in its territories, which by the way is dependent upon positive economic factors at home and abroad.

Politics is more than character assignation and the management of our county involves strategic planning and projections, which one must accept exist in the UK, so much so that they do not have to wait for crisis in their territories to know that if certain financial management rules are not followed what the consequences will be to us and them. Accepting this premise allows us to see how irresponsible our Premier and his party has been thinking they could bluff the UK and get them to back away from their insistence on Cayman moving towards establishing a sustainable revenue base, which is to them nothing less than direct taxation. The Premier is therefore correct in saying that the boys in London want to push the Cayman Islands into implementing direct taxation because the UK understood and decided long ago that the only way their overseas territories can be financially sustainable over a long period of time is through sustainable revenue from direct taxation. But this is not just their attitude towards us and the other overseas territories; this is truly their belief based upon sound deductive reasoning. And I understood this as being their position from the time I was a member of Cabinet between 2001 and 2005, so do not for a second think that I am just talking without any kind of inside experience.

Again the point the UK has been making to us for years is first of all that there is no such thing as a secure economic base and whatever may be the pillars of our or any economy, the dependability of that activity will be subjected to international trading conditions and relationships and not just a condition to be decided upon by the supplier of services such as offshore banking, which could in the future be eliminated or curtailed by the major capitalist nations out of necessity to stabilise their own economies. Therefore, the UK’s position is that tax havens are of the past and so called offshore financial centres have but a limited duration. The UK has been trying to explain for a long time that we need to build our economy on a more secure foundation and this foundation is our natural resources of sun, sea and beaches. Tourism, rather than the financial services, is the most important service we will have to depend upon in the future whether we are talking 25 years, 50 years or 100 years. The UK knows that this is the only economic activity that will provide the basis for our ability to trade in order to provide for our daily needs. When the UK suggests each budget period that we need to reduce CI government spending and increase our income in areas where income is more predictable and dependable, they do so because they know that much of the offshore business will one day soon be going back onshore.

The world’s complex financial system has been with us for hundreds of years now and one thing for sure is that there is nothing for sure in this system and it would therefore follow that there exists as much chance of it breaking down as of it remaining intact in the manner we have come to know and accept it today. And after this year’s presidential election in the US, we will experience a more aggressive approach by Europe and the United States to realign the world’s financial systems. Because for as much as the so-called capitalist may cry about the restraints governments place on free enterprise, the real smart capitalist has always known that the public and private sectors are complementary parts of a whole system that were born together and can never be separated. Those who accept this reality will have to further reason that the real and necessary needs of the world governments will always have priority over the needs of the private sector although modern governance would be impossible without the successes in the private sector. The point is that we must not believe all we are told by the proponents of the supremacy of the private sector over the public sector. Government must be flexible and dynamic, but it should never surrender its sovereignty over the nation because the sovereignty it holds, it holds for the people, at the will of all the people and not just the masters of industry.

The principles of good governance as advocated by the UK flow from the above political philosophy and there is no wonder then that there exist a sharp contrast in thinking between the UK government and its overseas territories that are yet to awake to the realities of the 21st Century. This lack of awareness in the last remaining colonies is due mainly to selfishness and lack of intellectual learning. And the private sections in the colonies have but the slightest interest in the preservation of the nation as a whole since their members see themselves as part yet apart from the majority of the colonies and they will run to other countries if conditions no longer allowed them to exist as a superior class within the local social, economic and political systems.

The UK knows that there is very little tangible wealth in Cayman that belongs to the Caymanian people and this makes our economy fragile and the UK’s potential financial liability and responsibility for the Cayman Islands enormous. It is therefore understandable why the Premier persists in saying that the UK wants him to introduce direct taxation and they are using the framework of fiscal responsibility to accomplish their direct taxation objective. But unlike the Premier, I believe that their intentions are benevolent rather than destructive to our national objectives once they have been realistically defined.

Some form of direct taxation in the near future is a must and those independents seeking office should not waste time trying to fool the Caymanian people into continuing to believe that direct taxation is avoidable and if it is considered, it is because our civil service is too big. The cause of taxation will be first of all a consequence of our need to create greater financial viability for our island state and build up the necessary resources for times of local and international recessions, which will be more prevalent in our future. Certainly the process of restructuring international capitalism has become necessary and has already begun but it will take longer than most had predicted it would. Therefore, we must find ourselves on the side of reason and common sense and this means we must understand our evolving position as a banking surrogate within a changing capitalist world.

The Clifton Hunter High School and the new government administration building are great edifices of first world progress but they tell the story of how the lack of reasoning and projections caused a tiny island sate to put pride rather than sustainable development at the forefront of their development. For although our civil service, our teachers and our children deserve the best buildings, we have not the economic means to sustain such fanciful wishes. So perhaps the leader of the opposition should also take part of the blame for the UK’s interference and their suggesting the need for direct taxation here in the Cayman Islands.