Diminishing returns for work permit fees

It appeared to be inevitable and may now just be coming true: Income from work permit fees is likely to fall, perhaps precipitously.

According to the Economics and Statistics Office latest Compendium of Statistics, the Cayman Islands government received $87.3 million in work permit revenue last year. There had been $88.9 million in 2017, and the number had consistently grown in each of the eight prior years.

The drop in work permit revenue should not come as a surprise. What may surprise is the fact that the government revenues appear likely to fall, perhaps significantly, even if the number of work permit holders grows.

The reasons are straightforward enough. In some cases, Caymanians are advancing in their careers, and replacing expatriates who are leaving. Other expatriates find relief from high immigration fees in the Special Economic Zone. Still others, working for foreign companies with no presence in Cayman, have taken the authorities up on their kind invitation – that we simply cannot understand – to have no work permit at all, as is the case for expatriates in government service.

Those are, however, not the primary reasons.

With the abandonment of Term Limit Exemption Permits, and an easing of the permanent residence system, significant and growing numbers of expatriates are inevitably proceeding to become Caymanian. The whole process, from arrival and without being married to a Caymanian, usually takes no more than 15 years. This, subject to appropriate limitations, should be celebrated.

We are now at a stage that many of our long-term residents have obtained permanent residence and are now becoming, or will shortly become, Caymanian. A significant wave of others has acquired permanent residence in the past two years. Many of them were delayed in the processing of their applications and so only have a year or two to go before they, and their families, also become Caymanian.

Almost all will have met, or exceeded, the government-required conditions for membership. Being Caymanian is an honour, and for those on whom it is bestowed, a privilege. It can and should be a source of great pride, but being Caymanian also brings with it myriad benefits, including an exemption from having to pay any work permit fees. That exemption applies not only to the Caymanian, but also to their spouse.

The advantage of any exemption varies by occupation. Not all work permits or permanent residence certificates are created equal. For teachers, the annual fee is nil; for labourers it is $550; for accountants it is $13,650; and for equity partners in law firms, it is $32,400. The reality is that financial services industry professionals, those responsible for the highest fees, have been granted PR in substantial numbers. They are wholly deserving, having fulfilled the criteria for that award. They now qualify and cross the next threshold. They are becoming Caymanian. There does not appear to be corresponding levels of growth amongst executive-level work permit holders, with the pace of their predecessors becoming Caymanian, retiring, or leaving now outpacing the supply of new accountants, bankers and lawyers from overseas.

Certainly, the number of work permit holders will likely continue to grow, but at current work permit fees it takes 59 labourers (or 108 produce clerks or 216 babysitters) to generate the equivalent revenue in work permit fees of a single law firm partner. With the ongoing apartment construction boom, fuelled in part by a recent change in the stamp duty treatment of pre-construction purchases, there will be heavy construction activity for the next two years. The number total of work permits may well continue to grow, all while the average price paid for each work permit appears likely to continue to decrease.

The likelihood is for substantially decreasing work permit revenues. These will likely be offset by import duties on materials and furnishings required for the new buildings, but when all the construction is complete, that too will diminish. At that stage, large numbers of construction workers may be without work and will return to their home jurisdictions. At the same time, we will celebrate the latest wave of PR recipients becoming Caymanian. The monies generated in work permit fees, and the number of work permits, will then fall in unison, perhaps significantly. We can only hope that this prospect is recognised and planned for.

All is far from lost. There are alternative revenue sources and options to mitigate the consequences, but these will need to be actioned very soon, and likely must include welcoming new residents to our shores.

Nick Joseph is a partner and Alastair David an associate at HSM.