Paul Byles
“Trying to fight these prices but looks like the prices fighting me!”
An elderly lady said this to me at the supermarket in late 2023. I laughed, made a joke with her about the potatoes and walked away.
Her joke very accurately captured the situation in the Cayman Islands. It has taken almost three months for me to get around to writing this article inspired by the incident, and anecdotal evidence suggests that things have not improved. In the Cayman Islands we are fighting prices and for years those prices have been winning the battle. The question is why.
First there are the so-called structural reasons: For one, we import almost everything and our indirect taxation model means that inevitably, there is that import duty impact on the items we consume (consumption-based tax model which is progressive in nature).
Secondly, the cost of utilities comprises a significant portion of the cost of living but we have made almost no progress on our stated strategy to implement renewable energy. This issue is considered ‘structural’ because we have had a utilities monopoly in place for most of our modern history with almost no change to that market or our energy strategy for decades.
A third factor, although certainly not the final one, relates to the very high cost of accommodation owing to rising property prices (driven by foreign-investor demand and higher construction costs), higher interest rates (driven by US monetary policy), and rental rates. This last set of issues pushes access to ‘affordable’ accommodation out of reach even for what many would term ‘middle’-income-earning residents in 2024.
Referring to these factors as structural is not meant to imply that we cannot address them, it just means they cannot be fixed very quickly (we need more than 10 rounds to get a knockout in this fight).
But winning the fight against prices requires more than asking for a weaker opponent, which is the equivalent of addressing the three factors mentioned above. We also need to be better equipped for the fight and there is no better set of skills or boxing gloves than having wages that match or surpass those price increases.
The real issue is that there is little evidence that wages have moved sufficiently (if at all) in the same direction for us to maintain at least the same purchasing power in the Cayman Islands. And while some economists will argue that higher wages end up leading to higher prices, other economists can provide several arguments on why that isn’t necessarily the case.
Recent reports that the minimum wage in the Cayman Islands might be increased to around $8.75 are welcomed but any final decisions on that new number should carefully take into account the true purchasing power and how that has slowly eroded over the past two decades. What is an acceptable minimum standard of living in Cayman and what does it actually cost to achieve that?
When we combine these long-standing issues with the inertia seen in the rise of wages in the local economy, it becomes very clear why “the prices are fighting us”.
Paul Byles is director of FTS which provides regulatory and management consulting services. He is a board member of the Special Economic Zone Authority in the Cayman Islands and a past president of the Cayman Islands Chamber of Commerce.
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We are all aware of the high prices of imported groceries in our supermarkets, especially imports from the UK, which typically sell for 3 to 4 times the price in the UK.
Of course these products need to be shipped a long way in refrigerated containers.
We were recently in Dubai and Hong Kong and looked at the supermarket prices for the SAME UK items we see in Grand Cayman. Typically about half the price. Yet the items obviously needed to be shipped just as far or further.
Why is this? Is it import duties, higher shipping costs or higher retail margins?
You missed higher insurance costs. I own a small building in West Bay and the insurance just went from $6000 to $11000 a year. That is a big increase. The new building Seacrest has to pay $368,000 a year in insurance costs divided by 20 units That is one of the reasons rents are so hight
Consumption based taxes are regressive. CUC is a natural monopoly, but these factors have not changed over the decades.
We also know that service level wages have not kept pace with the price increases in Cayman.
So, it would be interesting to see the margin levels of our major retailers from 2019-2023.
I wish people would be more direct in proposing solutions, including the author.
Yes, we need a minimum wage far higher than that being proposed. The lower earners in Cayman society are massively struggling whilst the wealthy don’t even look at grocery prices or care about their utility bills. That only papers over the cracks though.
To address the huge structural issues we must finally recognise that Cayman’s economic model is no longer fit for purpose. We simply must now look at a model including taxation of income and wealth in order to move towards a fairer society. We need more direct taxation (taxing those with higher income and wealth more than others) and use that to reduce indirect taxes that are regressive, notably import duties that increase the cost of food and utilities.
We also must look at structural reasons for housing costs. Almost uniquely to Cayman we have little supply problem as we do build a lot. Our issue is demand. Prices are going sky high post Covid due to overseas capital flooding in. Time to look at a two tier system to make housing affordable for our people. It is the only way to effectively balance demand in a reasonable time frame. Oh, and I’m happy to talk to CIG about this for free, no CI$270k consulting fee, simply a Caymanian applied economist with decades of in depth actual experience in development and finance in Cayman.
Back to taxation, if we care about our fellow Caymanians let those who earn more than they need pay taxation to support others. Paul Byles, Steve McIntosh, Tony Travers and I debated this at the Harquail (and live on Radio Cayman) over a decade ago and still nothing on moving this forwards.
Meanwhile the “we don’t have to worry about violent crime and guns it is just the gangs hurting each other” is now no longer the case. Keep hurting those less fortunate to enrich the already well off and crime follows inexorably.
Let our thinkers and policy makers be braver and admit that the emperors clothes are in tatters and Cayman need a new wardrobe.
“We need more direct taxation (taxing those with higher income and wealth more than others)”
Do that and the economy will be destroyed almost overnight.
Most of the people with the high wealth you are so jealous of are foreigners, who choose to live here BECAUSE of the zero taxes. It is our biggest selling point to attract investment.
Every millionaire who moves here pays a fee of up to $100,000 KYD for permanent residence, some $200,000 KYD in stamp duty when they buy a qualifying home, not to mention some 40% import duty on a car and, of course, import duties on much of their consumption.
Furthermore, while there is no direct tax of income there is a work permit fee on foreigners who work here. A highly paid individual, like an accountant or attorney, will attract a work permit fee of some $50,000 per year. Even a maid or cashier attracts a work permit fee.
It is these taxes that help to allow the government to function without any direct taxes on Caymanian citizens.