Cayman: time to move on

Posted on

I'm going to trust that my friends at Cayman NetNews are going to forgive me one of my occasional abuses of copyright and so reproduce in tot one of their excellent editorials.

I promise you: I don't write this stuff. But I do admire the guy who does:

An article in Monday's Christian Science Monitor entitled "Tax havens in US cross hairs" mentioned four of the so-called tax havens referred to: the Cayman Islands, Bermuda, the Isle of Man and Liechtenstein.

Cayman was, however, the only one mentioned three times - perhaps reflecting our higher profile in this context, which was not a positive one.

The thrust of the article was that tolerance on both sides of the Atlantic for offshore tax havens, and the individuals and corporations that use them, appears to be fading in the face of billions in lost revenue.

In the United States, whoever wins November's presidential election will be confronted with the problem of raising revenues and/or cutting spending in order to reduce a massive federal budget deficit.

Of course, the Cayman government is facing essentially the same problem, but that is neither here nor there for the purposes of this discussion.

According to US Senator Carl Levin, secretive offshore tax havens cost the federal government $100 billion in lost tax revenues each year and, as he sees it, these tax evaders are "willing to rob Uncle Sam and offload their tax burden onto the backs of honest taxpayers."

In Washington, the IRS stated in February that "combating off-shore tax avoidance and evasion are high priorities."

Lucy Komisar, co-chair of the US wing of the London-based Tax Justice Network, says that closing or limiting tax havens is "an idea whose time has come."

Joel Slemrod, a tax economist at the University of Michigan Business School, sees tax havens as "clearly a bad thing." They enable many small island nations to "commercialise" their sovereignty at the expense of mostly industrial nations, he says. Tax havens have given tiny nations a lucrative job-creating business and, once again, the Cayman Islands is referred to as having 5,400 financial-services employees.

This is an issue that we regularly raise for debate but very few people in either public or private sectors seem to acknowledge that the writing is on the wall (and has been for some time) as to the direction that Cayman's traditional offshore industry seems to be heading.

One local attorney, Stephen Hall-Jones, did take up the issue recently in a letter to the editor and he made some very valid observations, including the telling point that he used to believe that there was no moral obligation on the part of any country to impose direct taxation of any kind, which largely coincides with the view expressed as recently as this year by the Chairman of the Cayman Islands Monetary Authority, Tim Ridley, that paying tax is not a moral obligation.

However, Mr Hall-Jones now believes that an independent democratic country may owe a moral obligation to the wider international democracy that goes "beyond simply applying its own domestic choice in its internal fiscal philosophy."

It seems to us that Mr Hall-Jones' conversion on this issue may reflect a growing global consensus and one that is not especially favourable to our financial sector.

He echoed a message long promoted by us that a "head-in-the-sand" approach is not the solution, and expressed the hope that "someone is prepared to give us an honest answer."

Thus far, that hope remains unfulfilled so far as we are aware and, in our experience of arguing for the same thing, is unlikely to be addressed any time soon in the typically reactive environment of public sector management and administration in the Cayman Islands.

However, it still seems to us that the looming problems in this respect are not going away but getting potentially weightier with each new media report and official or political murmurings in the more highly-taxed jurisdictions.

It would be nice to think that there might be a contingency plan should our financial services industry suffer a devastating blow, but there is no evidence that one exists. Of course, each financial institution that transacts offshore business of any kind here has their own such contingency plan, but that will involve them bailing out of Cayman rather than sticking around to offer or be part of any solution.

The problems that appear to be looming for the financial sector are just some of the severe economic pressures that the county is facing. We hope that more voices of comprehension and reason will soon be heard in order to stimulate a real and effective national debate on these issues.

Therein are words of real wisdom and insight.

Good to see Joel Slemrod sticking his neck out too.

And when the crisis comes, we won't just say 'we told you so'; we'll also say ' now deliver real support to help Cayman move on'. Because it will be needed.