The price of gas, toothbrushes (and everything else)

We were surprised by how many of our readers were surprised when they learned from last Friday’s editorial that government makes more money from our electric bills than our service provider, Caribbean Utilities Company ($25 million vs. $20.4 million in 2013).

The reason this public information was so much of a revelation, we believe, is that most of the revenues the government collects are from “indirect taxation,” and, therefore, are “hidden” from those who are actually paying them.

Such a system can be deceptive and insidious, since it easily leads to the impression that the cost of government and the services it provides are, in effect, “free” — or at least paid by someone else.

Far from it. Consider gasoline prices at the pump:

Following several stubborn months of exceptionally high gas prices, it appears that the cost of fuel may have peaked for the moment, sliding about 20 cents per gallon in the past month, as the Compass reported last week.

Now it’s “only” about $5.39 per gallon in Grand Cayman. Much finger-pointing has taken place lately among government, gas station owners and fuel distributors over who exactly is responsible for the high prices we pay, but it appears that, generally speaking, Cayman consumers are the victims of the usual economic conspiracy — global pricing, purchasing patterns, small market size, distribution expenses, profit margins tacked on along the supply chain, and government fees.

The only factor we have any direct control over is this final one. On every gallon of gasoline imported into our country, the government collects duty of 75 cents. That means, every time you buy 15 gallons at the pump, that’s $11.25. For 20 gallons, that’s $15. Put another way, hidden government fees add up quickly.

The same basic narrative holds true for almost all purchases made on island.

Though officials have peppered (littered?) the Customs Tariff Law with various exemptions and exceptions, the standard duty rate on most imported goods is 22 percent — which is levied not only on the “value” of the item, but also the cost of bringing the item to the island.

(For example, a pharmacy orders an $80 crate of toothbrushes. The cost of delivery is $20, including shipping and insurance. The pharmacy will pay government a total duty of $22. That means the pharmacy must immediately mark up the retail price of the crate of toothbrushes to $122, and then add to the retail price a portion of such additional expenses as work permit fees, trade and business license fees, mandatory health and pension payments, payroll costs, and other overhead expenses — including the aforementioned CUC bill. Any profit margin is added to this sum total.)

The purpose of our explication is not to disparage the government for levying taxes and collecting revenue. Every government does that. In the absence of direct taxation on personal income and property, the import duty is a powerful, and potentially efficient, means of raising the funds government needs to function.
Our intent is simply to remind residents that Cayman’s international reputation of being a tax-free haven does not apply to them. The truth is, as Ernst & Young partner Kieran Hutchison pointed out in a November presentation, “As a jurisdiction, people view Cayman as tax-free, but we just raise revenue in different ways.”

However, as we will continue to argue, the Cayman government collects and spends far too much for a jurisdiction of our size.

And we Caymanians and foreign residents are paying dearly for such largesse and excess — at the fuel pump, on our electricity bills, in the grocery store, on the loading dock, in the immigration office, at the planning department …

1 COMMENT

  1. However, as we will continue to argue, the Cayman government collects and spends far too much for a jurisdiction of our size.

    That much is very clear and that statement does not go far enough. Not only is the spending too much but they are not meeting basic commitments they have made to their own staff.

    CIG still owes its own pension near 200m from commitments it made to its staff 15 years ago and we are told it will still take another 10 years to made good on that commitment.

    A few weeks ago the Compass reported that the future cost of the civil service healthcare (which they make no payments themselves but will tax us to pay for it) will cost 1.1b spread over 20 to 25 years. Nothing has been reserved for such a massive expense. This amount equates to an additional (average) expense of 44m per year that the Caymanian people will soon need to bear. Using the ESO indicating 33,000 Caymanians that means that if each Caymanian had to reach into their wallet to pay for the gov’ts future healthcare, we would and will owe 33,000 each and every one of us.

    And yet CIG is totally unprepared in this regard no different than having not paid amounts due into their own pension plan for the past 15 years with 10 more to go.

    Expensive inefficient government equals high taxes, equals higher cost of living, equals less money in citizens pocket, equals less money in the economy, equals less job opportunities and higher unemployment.

  2. Over the last 2 years when crude prices were over 100/barrel, the avg price of gas in the US was as high as 4.41 and is now down to 2.61.
    You cant tell me that we arent getting scalped from a manipulation of gas prices in Cayman when prices here have only dropped .30/gallon.
    Also, the reason, as I have said before why there is no alternative energy on this island, especially with the fact we get 350 days of sun is the money (the 2 monopolies) CUC and CI Gov will lose.

  3. On the CUC / CIG profit question, The CUC 20M is profit (i.e. after accounting for maintenance, depreciation, investment and so on), it gets distributed to the shareholders in the form of a dividend…

    It is traded on the Toronto stock exchange for about 10.73 a share, with the comment;-

    ‘Based on its net profit margin of 9.12%, Caribbean Utilities Co Ltd is less effective than other companies in its industry at turning revenues into bottom line profit’

    It is valued at 313 Million (i.e. there are about 30 million 10 dollar shares) with a projected dividend of 66 cents – that is correct for a 20M profit…

    NOW, here’s the question, I was told that CIG is a major shareholder (This may just be a rumour – there was nothing to support this so I take it with a pinch of salt, BUT it is common practice for governments to only partially privatize companies), but IF (and it’s a big IF) that is the case, CIG not only make money on the Duty, but on the dividends for the shares it holds too.

    for example IF CIG owned 3 million shares, there would be a 2 million dollar annual dividend… but that’s hypothetical!

  4. Why are fuel efficient scooters and motorcycles taxed so heavily? Perhaps because some of them can get over a 100 MPG.

    Is the reason why Government collects 37% Duty on them because if more people ride them this would result in less spending at the pump?

    Government should assist with making these vehicles more affordable by reducing this duty to fairly fall in line with other Duties.

    Government collects between 10-15% on Electric and Hybrids scooters and motorcyles. Why is the consumer paying more than 2-3 times this amount to Government on gas powered ones?

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