I admit to quiet amusement at the news that the Cayman Islands is planning to introduce its first ever income tax. As CayCompass.Com reports:
Premier Bush's announcement last Wednesday that the Cayman Islands government would seek to implement a 10 per cent 
payroll tax for work permit holders who earn more than $20,000 per year as early as next month has touched off a firestorm of controversy and plunged nearly 
everyone in the country — even those who don't normally follow local politics all that closely — into a 
spirited debate.
Mr. Bush followed up on Thursday evening, stating that the government's budget process has “gone as far as we can go” and that Cayman was now awaiting a response on it from the United Kingdom's Foreign and 
Commonwealth Office.
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[…] just noted the crisis that the Cayman Islands is in, I thought it worth adding a little more background on the place and the problems it causes. The […]
Cayman is undoubtedly in a mess. Its population has doubled in the last 25 years – all expats – and it is impossible to see how its infrastructure could cope with the much larger population with just consumption taxes, import duties and financial licensing fees.
The finance industry there has changed, with far fewer “cubicle banks” from whom they used to generate lots of annual licence fees. The growth of hedge funds offset that loss for a while, but that too is now suffering a downturn. Cayman’s previously successful financial model is bust and there is little chance of replacing the lost income. An income tax is therefore inevitable.
The fact that it is only levied on expats is a huge problem. Apart from the obvious discrimination issue, for expats it is seen as a hardship posting (yes,honestly), and if expats are discriminated against then they will leave in their droves and the industry’s decline will snowball. Cayman grew overnight because of similar issues in the Bahamas, while BVI really took off because Noriega’s government became unstable in Panama.
However by far the biggest issue in Cayman is government corruption. McKeeva Bush is not trusted by many Caymanians, or by Britain, and his recent land deal with Dart is just one of many highly questionable deals. If things don’t improve soon, then direct rule as per TCI seems inevitable. Cayman’s best days are behind them.
Ironically, the Crown Dependencies will benefit hugely as hedge fund jurisdictions as business migrates from Cayman.
I don’t see anything like a similar situation in the Crown Dependencies though. Their constitutional position as Crown Dependencies is materially different from the British Overseas Territories. The Crown Dependencies will undoubtedly tweak their tax systems, although Guernsey is in by far the best position, not having even yet introduced a GST, unlike Jersey’s 5% or the Isle of Man’s full VAT.
Simon you write: “Cayman’s previously successful financial model is bust”.
Is this the “model” that deprives third world countries from tax revenue and adds further torment to the 1 billion people who are already starving in our greedy world?
That McKeeva Bush and the Cayman government are corrupt comes as no surprise to anyone. All the governments in the Crown Dependencies and overseas territories are headed by corrupt ministers — and ALL tax havens are fundamentally corrupt engaged in “many highly questionable deals” on a minute by minute basis…
The PSG has absolutely NO sympathy for the shysters involved in this repulsive trade – but every sympathy for the indigenous islanders who are held hostage by it.
And should the Crown Dependencies, as hedge fund jurisdictions, benefit from business migrating from Cayman this will serve to double our efforts to expose these secretive places for what they are — Hell holes.
PSG
I means their own government’s financial model in terms of generating revenues to run their economy. You clearly have your own opinion on how it is generated!
I think your second paragraph is a crass, unsubstantiated over-generalisation although, again, you are entitled to your own opinion.
If you knew a lot of “indigenous islanders” you will find that a huge percentage of them do not share your concerns about “being held hostage to it”. They are only too aware of the alternatives, and they also know that things are not as black as you paint them to be. Some certainly do share your concerns though.
Are you saying that every Cayman hedge fund is a problem? Really? On what basis do you make such a claim? There are about 10,000 of them. You only hear about the bad ones, which is understandable. They are not all bad!
@ Simon
Your comments:-
Para 1: The governments of Tax Havens GENERATE a large amount of their revenue from banks, accountants, lawyers, etc involved in the tax dodging industry. Such financial models eventually impact on poor countries being deprived of tax revenue.
Para 2: In the experience of many well informed people the so-called “governments” of tax havens are largely elected as stooges for the regime — and the higher up the hierarchy the more corrupt they become…
Para 3: Contrary to what you may claim there are honest and decent people in the world who would rather see their standard of living reduced rather than persist in denying that they are contributing towards the starvation of 1 billion souls.
Para 4: Every financial institution and every financial transaction in any of the world’s secretive tax havens must be treated with deep suspicion. Any financial operation that chooses to base its self on any of these lawless jurisdictions should be treated with extreeme scepticism.
Thank you for recognising that the PSG is allowed to express opinions … opinions which are neither crass, unsubstantiated nor over-generalised but simply based on pure FACT.
PSG
Sorry, but I think you need to distinguish between “fact” and “opinion”. To state that something is “fact” just because you believe it, does not make it so.
Para 1 – I would prefer to use the word “planning” rather than “dodging” but I can accept that this is “fact”.
Para 2 – Perhaps in some jurisdictions this may be true, but to claim that its the case in all offshore jurisdiction is pure fiction. In Guernsey and Jersey there are no political parties, so everybody stands against each other as an independent, and a democratic vote is held to elect them. This is pure “opinion” on your part and it is completely wrong to imply that its a “fact”.
Para 3 – There are definitely some in the offshore jurisdictions who think that way, and I am quite sure that the number is starting to rise. However, if you believe that it is anything like a majority then you are massively mistaken. it is merely your “opinion”, not “fact”.
Para 4 – I understand where you are coming from, but again I think you over-generalise. This is merely “opinion”, not “fact”. I too have deep suspicion of the activities of many offshore banking subsidiaries of major groups, but I know of many offshore organisations of whom I have no suspicion whatsoever, and in my opinion, neither should you. The apples are not all rotten.
Sorry, but your last paragraph is simply incorrect.
Simon
To claim there are no parties in Jersey is just wrong. There is – and it is drawn rom a local elite sponsored by big finance to do its work
This fact – and the undemocratic nature of the Constables and two tier membership all undermines effective democracy – indicated in the low turn out rates of those who kno0w tyere is no point voting as they’ll get the same again whatever happens
It is you, respectfully, who is making assertion and not stating fact
Richard
Richard
Very interesting. Its not a Jersey which I recognise. You say “sponsored by the elite”, but do you have any evidence of that? The depuities that I know in Jersey are entirely independent and will have nothing to do with political parties. Remind me please which parties those are? I think there is only one small one.
I can categorically assure you that nothing of the sort exists in Guernsey and never has done. Anybody claiming otherwise is misrepresenting the facts. There is no similar Constable system in Guernsey.
Are you seriously trying to say that there is no democracy in the Crown Dependencies? Are you seriously trying to say that there are restrictions on who can stand for election and who may vote? Sorry but that is simply NOT the case.
I don’t think that you are stating “fact” at all where Jersey is concerned, and I am 100% certain that you are not in relation to Guernsey. I live in Guernsey and I am close friends with and/or a relative of several current deputies. What you say is utterly untrue of Guernsey.
The Edwards report agreed with me
“just consumption taxes, import duties and financial licensing fees”
Simon, you forgot to mention annual 10,000-15,000 work permit fee/per person that employers pay. This is more than 10% on expats earnings. ALREADY. You also need to read the Auditor General reports about CIG spending, incompetence, theft and waste that go unpunished. They don’t have a financial crisis, they have incompetence and ineptness crisis.
To some degree true
But it’s interesting, isn’t it that cayman does not produce good government?
Excellent start to the week Mr Murphy! describing the so-called “governments” of the Crown Dependencies as being the equivalent of “local councils”.
Except that vested interest in Westminster turns a blind eye and a deaf ear to the monkey business of these “local councils”, which would have long been closed if they had attempted it on the mainland.
In reality these offshore “local councils” have been high jacked by the tax dodging business and related service industries; not a difficult achievement considering they are mostly staffed by pliable ninnies who will agree to anything in order to preserve their dubious status as “politicians”.
But politicians they certainly are with absolutely no clue on how to run an economy — but every clue on how to harbour a tax dodging industry for the benefit of a few privileged bank accounts.
May the problems facing the Cayman Isles speedily visit the Isle of Man, In buckets full!
…as they already have in Jersey.
This isn’t a tax-related story, but: the man appointed to be the stipendiary magistrate in Jersey in 2008 has never sat as such: all that time he has been under investigation. In the last couple of weeks he has been found guilty of defrauding a pensioner of a six-figure sum. However, he has had to remain on full pay (£110k pa or thereabouts) – because the States of Jersey cannot sack him. His removal is in the gift of the Privy Council in London – which, as is usual, ignores what goes on out here.