By Gordon Barlow

In the present economic uncertainty (it’s not yet a crisis, in Cayman) three messages are coming loud and clear from our new Government. 1) Budgeted Public Expenditure is more than Public Revenue; 2) Serious cuts in Public Expenditure won’t happen; 3) New sources of Public Revenue are being frantically sought.

This is what comes of thriftless management, of course. Any prudent private-sector manager could shave tens of millions a year off Public Expenditure without blinking. There are dozens of unnecessary programmes and subsidies that could be shut down with only minimal impact on our society. Cabinet should set up a Vision-2008 type of committee to advise what to do. It’s not rocket science.

The unnecessary programmes and subsidies are populist rackets of the kind that have messed up so many other Caribbean Islands. They have messed up Cayman, too, though the mess has hidden in the shadow of our flourishing offshore industry, until now.

Government thriftlessness has left us with a monstrous Public Debt and a cash flow deficit. Nothing has been set aside for a rainy day, and now the rainy day is here. It’s a disgraceful situation that should shake our faith in the capability of our rulers. Even more disgraceful is the proposal to borrow more, rather than cut Public Expenditure. What a shambles it all is.

Mind you, it’s the very nature of government. Private businesses aim to make sustainable profits, and to save money for contingencies. Government businesses aim to provide services, and to spend every penny of their budgets. No money is saved for contingencies.

That’s why the safest government is minimal government, doing only what is essential to allow free enterprises to make their profits without gouging the public. Governments operate on the premise that annual revenues are assured; private companies know they’re never a sure thing.


Offshore transactions

This was not a good election for the UDP to win. They are on a hiding to nothing. If California must resort to paying its government employees with IOUs because the state has run out of credit, can Cayman avoid the same fate?

Unlikely, without a quick and radical revision of our style of governance.

So. More tax revenue it will be – unless Cabinet takes its courage in both hands and starts slicing away the wasteful state programs.

Will we have a tax on wages, either a general one or on work permit holders only?

Or will it be a tax on offshore transactions – either on actual wire-transfers or on journal-entries?

Both those ideas are bad.

A transactions tax would make Cayman uncompetitive. A tenth of a percent of the dollar value doesn’t sound like much. A mere billion dollars for every trillion booked?

The punters would never notice it.

The last figure I read for Cayman’s annual offshore cash flow was $5 trillion; it could be double that by now. Even with today’s huge sums, 5 or 10 billion dollars a year would make a switch to BVI or Luxembourg well worth while. We shouldn’t assume that our offshore clients are stupid.

Even a hundredth of a percent would give our MLAs’ dreams a happy ending. But our customers’ loyalty would be out the window the minute we levied a tax on transactions. What would we do, promise hand-on-heart that the percentage would never be raised?

Good luck with that.


Out of hibernation

As for taxing incomes or wages – well, a tax of 6% or 10% doesn’t sound like much. Employers could deduct it from wages and pass it on to a government agency much as they collect and pass on pensions deductions. It’s foolproof, right? The new agency would provide more jobs for Caymanians – and there might even be a small surplus after paying for all the new employees and related expenses.
Twenty-two years ago the government of the day proposed a similar tax on wages, for the purpose of funding the unfunded civil service pensions. The scheme would have established a state pension-fund modelled on Britain’s National Insurance Fund, with annual surpluses available to the state as “repayable” loans.

Expat contributors would have lost all their entitlements if they ever left the Islands. Huh. Not much need for rollovers if that had come into force, eh?

The Chamber of Commerce of the day mobilised public opinion against the scheme, and the public howled the proposal down. It was put on hold indefinitely, though not permanently. We all knew the proposal would return one day – and it seems the day is imminent.

It’s time for today’s Chamber to come out of hibernation and do its duty the way we did ours 22 years ago. If they don’t know what to do or how to do it, they can look up the old files. It’s all there in black and white.

Our Chamber of Commerce has a duty to the whole community, not just to its corporate members. Its leaders sometimes ignore this duty: they are ignoring it now.

They should sponsor a public committee of volunteers (not just Chamber cronies) to tell government how it could balance its books without any new taxes. I’ve suggested a Vision-2008 kind of committee; that would serve the purpose, unless they have a better idea.

By neglecting their duty, they are by default consenting to whatever new tax measures Cabinet foists upon us. Chamber members can always put their prices up to offset the taxes they pay; but we peasants have no remedy of our own.