By Mwangi Ngamate
mwangi@caymannetnews.com

The introduction of taxation in the Cayman Islands would be the end of prudent management of the country’s economy.

It is common knowledge that taxes hinder business from doing business. The money paid in taxes denies the company essentials, like hiring workers, investing in machinery or research and development that help the company in generating more revenue in the long run.

The money is considered a bother by the company, which it must reduce in all ways. It works as a burden to the entrepreneur. A businessman in the Cayman Islands recently said that, after managing his business prudently, the government now wants to slap more fees on his work permits and his payroll. The businessman said that it was unfortunate that politicians are now considering moving towards this direction.

Taxes expand government-run programmes; they hardly encourage fiscal discipline and other practices that would ensure that public expenditure is not out of control. If anything, they are misused and abused by politicians since they are sure of income.

Government services rarely shrink or get discontinued, so more and more taxes are needed to fund new services.

As governments seek to be competitive, hiring more people becomes one way of doing this and this leads to more people being taxed to fund big governments. In most cases, creating jobs is always a way that most administrations will use to get votes. Stuffing the government with more personnel is a sure way of securing this promise to hoodwink the public.

When governments start taxing their citizens, suave ones will always look and find new ways of raising the revenue. Most notorious were the colonial administrations; they had taxes such as “shaving tax” for any adult man, and also “Boob” tax for every mature female. Since most people had no other form of revenue, forced labour became the only option of ensuring one was not arrested for tax evasion.

One economist, the Austrian-born, British free market economist and social philosopher, Nobel Laureate Friedrich Auguste von Hayek (1899-1992) noted that ‘big government’ was a precipitate of chaos. This is because politicians are out to seek votes and hardly think 20-40 years down the line. So with a four-year or five-year voting cycle in the world, no politician would risk having a fiscal policy that would outlive him or her.

When re-election is the focus, asking a politician to leave a legacy by correcting government expenditure is demanding too much from them. Most politicians do not know what a legacy is and think it is a vehicle model marketed by Subaru.

When introduced to an economy, taxes can influence consumer behaviour. People do things to avoid paying taxes that might not be in their or their communities’ best interests, according to a survey carried out by Yahoo Answers. In the case of most countries, people resort to traditional forms of beer so as to avoid bottled beer that is taxed.

Taxes encourage tax cheating, which in turn gives people the idea that they can skirt other laws. According to the author of “Rich Dad, Poor Dad”, Robert Kyoseki, the rich employ accountants and lawyers who work to ensure that paying tax by the corporation is kept to a minimum. As a way of ridiculing tax laws, spending money in a luxurious restaurant by the rich is considered as a company expense, which is tax deductible in most economies of the world.

Recently in a report to the Italian Senate in May 2007, the then Deputy Finance Minister Vincenzo Visco said that the hidden, untaxed economy accounted for around 27 percent of Italy’s gross domestic product of nearly $2 trillion. He said the situation had reached “embarrassing proportions.”

Gian Maria Fara, president of Eurispes, a research institute in Rome, said Italy’s annual underground economy was equal to the combined gross domestic products of Finland, Portugal, Romania and Hungary.

Noting that taxation is directly proportional to density, meaning that the more you earn, the more you lose to taxes, and works to discourage workers. What happens is that taxation without a human element becomes the other end of Utopia. It is said that communism failed because there was no motivation for the workers to continue working hard because they were not rewarded.

The same now becomes true of workers giving their all, because if you earn more, you could end up in a higher bracket where your income is taxed more. No point in working harder, if more is taken away.

Taxes are always the beginning of unfair distribution of wealth or services. This is because the wealthy lobby and say that they will frustrate any government if they do not have a say in how the taxes are spent.

This leads to high-value towns getting great schools, inner cities with low-value property getting bad schools, and the cycle perpetuates itself. In other cases, the rich will trade horses with the government for tax cuts, as happened in the regime of George W. Bush.

All in all, introducing taxation should not be an option for a society that has never had it.

Mwangi Ngamate is a Cayman Net News staff reporter. The views expressed are his own.