Fees levied on the financial sector account for about 55 percent of all government revenue, Minister Wayne Panton said during the recent Campbells Fund Focus conference.
Faced with funding shortfalls in recent years, government has balanced its budget on the back of the industry through new, increased or redundant fees.
The current 2013/14 budget calls for the collection of $612 million in so-called “coercive revenues” — which in another country might derisively be labeled as “taxes.” That’s an increase of 26 percent since the 2011/12 budget.
Much of that revenue is being coerced from the financial sector. For example, since 2011/12, revenue from banks and trust license fees has increased by 46 percent to $34 million. Over the same two years, revenue from work permit fees has increased by 23 percent to nearly $59 million, again with the financial sector contributing disproportionately.
Astoundingly, the highest annual work permit fee in Cayman is $32,400 for an equity partner in an accounting or law firm. The fee for each rank-and-file certified accountant is $13,650.
The sector appears to be reaching a breaking point.
Canover Watson, managing director of Admiral Administration, warned that the fee increases are not sustainable: “In the long term, it will price Cayman out of the competition.”
No matter how lucrative, no collection of private sector companies can keep pace with the ravenous revenue demands of an unchecked government while hoping to compete on a global scale. Likewise, it is willfully ignorant to believe the government can meet its long-term debt, health and pension obligations based solely on increased revenue. Government must drastically reduce its size and payroll.
With unsustainable government spending, inefficient delivery of services and anti-business immigration policies, Cayman should be wary of becoming Bermuda.
A wise entrepreneur with businesses in both Bermuda and Cayman points to two immutable principles for small islands to flourish: 1) They must attract intellectual capital to build wealth, and 2) They must retain that intellectual capital.
We must ask, though, is the Cayman government’s economic “strategy” aimed at attracting — and retaining — the smartest and most capable professionals?
Of course not.
Take Mr. Watson. He reports his fund administration business employed 110 people in Cayman five years ago, but now only has 30 here — not because of any anti-Caymanian bias, but because Cayman, largely for parochial reasons, is rapidly falling behind an evolving digital environment.
Public officials who haven’t read Thomas Friedman’s seminal book “The World is Flat” on the phenomenon of globalization need to pick up a copy to read over the Christmas break. Confronted with confiscatory fees, onerous regulations, mandatory benefits and a Labour Law that tilts shamelessly in favor of employees over employers, there is very little keeping our sophisticated financial services firms from downsizing, outsourcing or flat-out relocating Caymanian activities.
Consider this scenario: An accountant’s work permit renewal has been denied, and she is moving back to Winnipeg. What is stopping her firm from continuing to employ her – only as an independent contractor?
The firm benefits from her knowledge of Cayman, saves $13,650 on her work permit and avoids the frustration of government bureaucracy. It’s also spared from obligations to provide pension, health care, maternity leave, sick leave and vacation. It doesn’t even have to pay associated rent and utilities for office space. The accountant keeps her job and lives near her family and friends. It’s a potential win-win for the employer and the employee.
The only loser is Cayman.