Economist warns of ‘build, build, build’ mentality

Cayman has a “regressive” tax system that stifles economic mobility and incentivises development, according to a Yale University economics professor.

Speaking at the Roy Bodden symposium last week, Mushfiq Mobarak said the island’s revenues came largely from consumption taxes, such as duty on imports, rather than the more common global model of income taxes.

“A billionaire pays the exact same tax on a carton of milk as a poor person,” Mobarak said.

The impact of that is poorer people pay a much higher proportion of their salary in taxes, Mobarak said.

One of government’s other main sources of revenue is stamp duty and taxes from development and sales of property. Mobarak said this created a pressure to “build, build, build” in order to balance the budget.

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He highlighted the developer-heavy make-up of the previous Central Planning Authority and pointed out rules in other jurisdictions require a cost-benefit analysis of the impact of development on the environment in the decision-making process.

Mobarak, who is from Bangladesh and is married to a Caymanian woman, said he was not speaking out against high-end development, which he acknowledged had some economic benefits.

But he said there was a need for balance, given the mangrove loss that had occurred over the past decades.

“When you have a Central Planning Authority that has high representation from the construction sector and little representation, if any, from the environmental sector, you are not going to be able to strike the balance that is right for the future of the country,” he added.

Mobarak was speaking before changes to the CPA board were announced on 1 July and his comments were in reference to the previous board.

  • This article is part of a short series based on some of the presentations from a symposium titled “JA Roy Bodden Public Intellectual: Interrogating the Cayman Society” held at the Harquail Theatre in Grand Cayman on 24 and 25 June. Many of the lectures were influenced or inspired by author and historian Bodden. To watch the full event go to the government’s YouTube channel.
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  1. This guy is a professor at Yale — a bastion of socialist thought like most U.S. universities these days — so his whining about Cayman’s tax policy surprises no one. What would be surprising is if he DIDN’T tow the company line. Of course, he’s gets applause not only from his peers, but also from the OECD and all the do-gooder outfits that want to boss everyone around. Nuts to them all. If endless sovereign debt, money printing, welfare, and tax-and-spend were the answer, then the U.S. and Europe would be utopia — but that is hardly the case. Cayman, choosing a different path, is doing just fine and is far healthier than most. Looking at all the ills in the U.S. and Europe, I’m grateful to be living here, not there. For those like Mr. Mobarak who are dissatisfied with Cayman, I have an answer: STAY AWAY.

  2. Another overseas academic telling us what we are doing wrong.

    I have to chuckle.

    Sixty years ago these islands had a subsistence economy. The population was about 9,000. It was a matriarchal society because the men went to sea as there was no work here. They returned every few months only. The Caymanian women bought up the children and made rope out of thatch.

    The mosquitoes were so bad that they suffocated cows and one had to wave a smoke-pot when venturing outside.

    Even the wealthiest families didn’t have electricity or a/c.

    Look what we have now. A major problem is too many cars on the road, as against almost none! Our supermarkets have foods from around the world. Almost every home has air conditioning, internet and modern conveniences.

    It’s certainly true that billionaires move here and pay no direct taxes. But their expenditure creates jobs rather than taking them. Who benefits in Cayman if an income tax is introduced and our wealthy non-working residents leave?

  3. Reduce duties on necessaries (food, clothing, etc.) and begin a simple, low cost ad valorem tax regime on high-end properties (after an initial period for owners to recoup the one-time duty of, say, five years). An annual $1,000 per each $100,000 > $1M of real estate value greater than the median-priced residential dwelling would be less than what they pay on their properties in many jurisdictions elsewhere.

  4. Two points:

    1. Given the state of the rest of the world, maybe ‘the more common global model’ is not the right one.

    2. Billionaires drink more milk (and use more ‘other things’) than ‘poorer people’

  5. The good professor is building his own theoretical bridges. If you are opposed to fair, broad and low tax policies and prefer to tax work then this is your guy. I can’t imagine a Cayman Islands that was tax dependent on its own citizens income. With such a small population pool of working adults, it doesn’t make any sense. I’m more concerned about the impact of President Joe Biden’s 15% global corporate tax and the UK’s pressure to implement it on territories.

  6. Not sure how much this professor gets out and about here in Cayman, but the hard reality is that we need to construct and maintain a built environment that people can occupy or purchase and in the process, generate wages and services demand that yield fiscal inflows as as a stream of lease and property transfer duties, inport and permit duties and room taxes. We cannot survive on financial regulatory arbitrage fees alone!

    Abandonment of the capacity of the Development Plan to adequately provide for environmental and social impacts protection is a political failure that is less than satisfactorily addressed by the National Conservation Council’s intervention powers where endangered species or specie habitats are threatened. This is not ideal, and a fit-for-purpose Development Plan needs to be derived by a competent Central Planning Authority that better addresses the Island’s capacity for development in a holistic and transparent manner.