Income Tax Discussed
In an effortto bail itself out of a financially strapped situation it hasbeen suggested that the Government of the Cayman Islands shouldincrease charges for services which traditionally carried a fee,and introduction of personal income tax.
Cayman Net News has learnt that owing toa downturn in the economy, which resulted from a dominoes effectinitiated by a slump in the United States, it has been suggestedin political circles that in order to maintain its current levelof services the revenue base must be broadened.
In a document which has been in circulationand much talked about over the past few weeks, a discussion paperentitled "The Medium-Term Financial Strategy (MTFS), 2000-2008",there are suggestions that the administration is projecting anothertough year if revenue enhancement measures are not taken to liftthe country out of the large fiscal deficit of year 2000 and theone being recorded this year. An option is a rollback in spendingbut government thinks this could have too negative an effect onthe nation.
Efforts to identify the author(s) of thisdocument have been successful. However, it is believed that itwas prepared as "A Discussion Paper" by well connectedpoliticians.
"It should be recognised that thereis a limit to the degree to which government can institute spendingcuts without reducing the level of services. If a high level ofservices is to be maintained, the government must be able to mobiliseits internal resources for financing these," read the unsigneddocument.
Speculation about introduction of this newtaxation has been making the rounds for some time and Cayman NetNews after considerable study of the draft document, and concernsby business leaders, decided to report on information containedin the document in the absence of any denial of its source.
This newspaper was unable to contact a seniorgovernment official who would comment for the record on whetherthe people of the Cayman Islands will for the first time be saddledwith an income tax.
"Large fiscal deficits in 2000 and2001 and rapidly rising debt pose serious problems for the futurefiscal sustainability of the islands. Spending has been rapidin all categories and out of line with revenue growth.
Difficulties exist in raising revenue, mainlybecause the tax base is narrow and inelastic but also becauseit is vulnerable to external conditions," the document read.
According to the document, there are twoscenarios for the future. One of them could be no policy changes,limited expenditure growth and no revenue measures which can resultin fiscal balances of -$19.4 million, -$16.5 million, and -$12.0million respectively for the years 2002 to 2004.
The other proposes some policy changes presumably involving introduction of income tax that wouldlead to higher expenditure growth in 2003 to 2004 with revenuemeasures of $17 million to $19 million in 2003 that would resultin fiscal balances of -$15.9 million, $1.9 million and $5.9 millionrespectively for the years 2002 to 2004.
In spite of the fact that the second scenario,with its policy changes, is projected to put government in theblack by 2004, any of the two strategies once proven true should take this country from what appears to be a freefallinto debt.