Brother, Can You Spare a Dime?” was one of the best-known American songs of the Great Depression, expressing sentiments that may well strike a chord with the public of the Cayman Islands during the current economic downturn.

The government is currently casting around for ways in which to finance the projected budget deficit, which is understood to be in the region of $80 million, although the numbers have been changing on a fairly regular basis.

If the population of the Cayman Islands is taken to be around 60,000 – again, another number that is no more than a guesstimate until the next census – each and every man, woman and child resident here will have to come up with $1,333 to cover their share of the budget shortfall.

Or, perhaps a couple of dozen people could band together and cover the salary of a government goat-counter – as alluded to by our contributor Gordon Barlow in his weekly column in today’s issue.

In any event, the share of the public spending shortfall for a family of four would be $5,332 – pocket change for some and blood out of a stone for others. And it is this that illustrates the dilemma faced by the government forced to squeeze more money out of the people: how to do so without placing an undue burden on the less well off – something that could well lead to major social strife.

Since Britain won’t allow the government to borrow any more money, perhaps the same banks that are willing to lend $300 million to the government should lend each of us our $5,000 share of that borrowing and we just pay it to the Treasury as a one-time tax. The government can give us a tax rebate of the same amount plus interest when times are better – assuming we would trust any government to do so.

But, whether $1,333 or $5,000, the fact remains that an equitable sharing of the burden of the inevitable new or increased taxes is going to be problematic.

If income, corporation and/or capital taxes are going to be unthinkable for us, that leaves either property taxes and/or a consumption tax of some kind.

We have discussed property taxes at length on previous occasions and the possibility was cogently argued at the recent economic “summit” by no less than the former chairman of the Cayman Islands Monetary Authority, Tim Ridley.

The problem with across the board consumption taxes is that they fall disproportionately on the less well off, who spend a relatively high share of their income, unless there is a raft of exemptions for things like food and healthcare to take this into account.

Furthermore, we already have a consumption tax in some sense in the shape of the import duties on goods brought in from abroad – in fact, pretty much everything.

Nevertheless, anyone who has shopped in the United States will be familiar with the addition of state sales tax to the published price. Anyone that has shopped in Europe will be familiar with the equivalent value added tax (VAT), except that the published prices usually include the tax.

Another objection to a consumption tax is that it is charged on money spent – no matter where it comes from. Thus, retired people, for example who may be living on accumulated capital (perhaps on which other taxes have already been paid), would immediately be at a disadvantage.

On top of this, the imposition of a consumption tax may well change people’s economic behaviour by making more sensible to save and less sensible to spend – at a time when the economy desperately needs people to spend.

The economy is already contracting, people are cutting back on spending and the economy is likely in a downward spiral with fear of job loss, causing consumers to spend even less, which in turn causes more job loss -- the so-called paradox of thrift.

In any event, one thing is sure: imposing new taxes is not going to be easy. Behavioural economists have shown that the pain caused by a loss is far greater than the pleasure caused by a gain of the same magnitude. This asymmetry, called loss aversion, helps explain why higher taxation is so unpopular. Paying higher taxes means reducing consumption now – something that is immediately painful.

However, this is a bullet that the country and the government are going to have to bite sooner or later.