Local tax earnings “comparable” to Canada, U.S.
The Cayman Islands could “very easily” come up with a list of needed public projects that require $1 billion in direct investment, according to a government consultant.
Finding ways government can pay for projects like airport expansion, port redevelopment, landfill improvements, the new John Gray High School and even salary increases for civil servants will require more creative solutions in the current market, Ernst & Young partner Kieran Hutchison told an audience at the government’s professional development conference on Tuesday. He said those potential solutions were largely what the recent EY consultancy report to government focused on.
Historically, Mr. Hutchison said, raising money for infrastructure projects in Cayman has been done through increased fees, but that’s considered “risky” at the moment given the competitive nature of the tourism business and a mobile, ever-changing financial services industry.
In any case, Cayman may have little room to maneuver on taxes and/or fees, given that its per capita public sector revenues are already “comparable” to those in Canada and, to a some extent, the U.S., Mr. Hutchison said.
“As a jurisdiction, people view Cayman as tax-free, but we just raise revenue in different ways,” he said.
Direct taxation such as income taxes and property taxes are not used in Cayman, but indirect revenue streams, such as import duties, work permit fees and business licensing and regulatory fees, are used to raise more than $500 million in coercive revenue per year for central government. Many of the fees are charged to non-resident visitors in the form of airport and hotel taxes, or charged to businesses – work permit fees, for example – rather than to individual residents.
But while the individual taxes or fees paid by residents and citizens of Cayman are lower, the money Cayman’s government collects from the various fees it charges is not.
According to data last compiled by the Heritage Foundation in 2011, the U.S. had a per capita tax revenue of US$13,084.80 [CI$10,991], while Canada’s was listed at US$12,825.60 [CI$10,773] for the same year. Adjusted for inflation over the last three years and assuming no major increase or decrease in tax revenues, those figures for 2014 would be approximately five percent higher, US$13,719 [CI$11,540] in America and US$13,467 [CI$11,312] in Canada.
In CI dollars, Cayman’s per capita tax revenue in the 2013/14 budget was – assuming a population of about 56,000 people and central government revenues of approximately $645 million – CI$11,511 per person.
“Revenues that come into Cayman are close to the same as what you see in high-tax jurisdictions like the U.S. and Canada,” Mr. Hutchison said. “Cayman doesn’t have a revenue problem.”
If the increased taxation solution is left out of the equation, Cayman has another problem in getting its public projects off the ground, Mr. Hutchison said. Its Framework for Fiscal Responsibility agreement with the U.K. won’t allow the territory to borrow money until at least mid-2016 – cutting out another potential way of kick-starting public sector projects.
“It’s a source of funds problem. This is the same problem with every country,” he said. “All we’re suggesting at the moment in our report is that Cayman look at involving the private sector. There is very minimal involvement of the private sector in…Cayman government activities at the moment.”
The 240-page EY consultancy report made a number of recommendations for government agencies, including the potential sell-off or divestment of government lands and properties, the outsourcing of hundreds of public sector jobs and the elimination of entire government departments.
Cayman Islands Cabinet members have not announced what recommendations will be accepted by government.