Wednesday, August 8, 2012

What other taxes might be on the agenda?

Our local rulers have achieved three stunning victories this past fortnight. First, they have guaranteed that the mutual mistrust between expats and native Caymanians will not be bridged until a whole new generation has grown up; second, they have put us all on notice that the scope of government will keep expanding indefinitely; and third, they have pulled the plug on our Offshore industry. Short of a unilateral declaration of independence from Britain, there isn’t much more damage they could have done to us.

A tax on Work Permit expats’ wages and benefits will be but the harbinger of a general Income Tax for everybody; we all know that. Cayman’s social contract has been betrayed; the governed can never trust their rulers again; the seal of Pandora’s box has been broken. Income Tax will always be on the agenda, now.

 Connivance between the expats and their employers would (will) reduce the tax’s yield sufficiently to require an expansion of the program. Shortfalls would probably be made good by a tax on their local rental income, then on their local property and other investments, then on their worldwide income and capital gains. Imposed one at a time, in succession, each of those would please the xenophobes whose votes decide Cayman’s elections. (No MLA has ever been elected on a pro-expat platform.) The 'phobes are having a whale of a time jeering at the expat victims already.

If the number of Work Permit residents were to decline – as a consequence of either the tax or the jeers – Public Revenue would decline and new sources of revenue would have to be identified. It's clear that Public Expenditure is our sacred cow, now, well beyond the reach of any fiscal reform. It may never be reduced.

The natural next step would be to extend the Income Tax to Caymanians right away, and everybody is expecting that to happen. I’m not. I expect the political gangs first to go after the Offshore firms and banks and their overseas clients. That would be madness, of course; but the clowns have zero understanding of how international tax-havens work. All they see are trillions of dollars passing through Cayman each year.

"We gotta get some of that! What harm could it do to tap those trillions for a lousy billion or two? Even one hundredth of one per-cent would do, to begin with. We should tax all the wire-transfers in and out of Cayman’s banks; that’s only fair. What could possibly go wrong?"

If that source were to produce less tax than expected – as a consequence of fewer transactions – yet another new source would need to be identified. The first new source might be the profits made by the large local companies – construction, hotels, banks, supermarkets, CUC, Cable & Wireless, and the oil-importers.

For years now, government’s Statistics Office has been wheedling financial information out of those companies, on the pretence that the World Bank wants it. Despite widespread resistance, and stories of outright false reporting by some small businesses, the Office must by now have a rough idea of every commercial sector’s profits, and how much money a general profits-tax would raise.

Oh yes: there are plenty of targets available, for a government bent on forcing the populace to pay (directly or indirectly) for the bloated and inefficient government payrolls, its outrageous travel expenses and all its other wastefulness. To date, the FCO clerks in London have rejected every one of Cabinet’s proposed Budgets for the current year. Typically, they are not advising on specifics, just demanding that the FCO’s general guidelines be followed.

If our representatives continue to ignore those guidelines, there will be no Budget at all, and the FCO will take over, as it has done in Turks & Caicos. Might our ruling MLAs then cry havoc and demand immediate political independence for Cayman? Indeed they might. And that’s the fear.