Bait and switch
It is inconceivable that after almost three decades in politics McKeeva Bush would be happy to go down in Cayman Islands political history as the man that introduced direct taxation. It may well be better than the ‘politician who faced the most police investigations’ but really, only marginally. So it seems probable that the latest proposal is a case of bait and switch.
The idea that he is proposing something so terrible that when the real policy (which may well be still pretty bad) emerges it won’t seem so awful certainly seems to be a popular sentiment. Those who are long-time students of Bush's political modus operandi appear to be in no doubt that this is the case, but so far the 'switch' remains a state secret.
Some have suggested it could be legalized gambling or even VAT, but are these really as bad as a disguised income tax (which is what the community enhancement fee is, no matter what euphemism one uses) that would lead Bush to create what is unarguably the greatest backlash against him since he took office as premier?
When the issue of the premier being under three police investigations emerged, with the exception of the opposition benches in the Legislative Assembly and Bush’s long time critics, none of the islands’ associations or organisations made much comment publicly. Of course, the muttering and head shaking has been going on in the boardrooms and swanky restaurants for some time now about the ‘Stan Thomas Affair’ but no one was prepared to stick their head above the parapet and openly criticise him.
But since he uttered the dirty words “enhancement fee”, every association and its dog has criticised the policy and made it plain that if Bush wishes to cling on to any futile hope that he will lead the next administration he needs to shelve this idea pretty sharpish.
When asked about the impact on the financial services sector of the Cayman Islands with the premier being under investigation for three different cases of possible bribery and corruption, the Law Society said it had no comment. Asked about the introduction of the payroll tax and the body launched a full scale attack, not just on the plan but on the government and its understanding of economic policy and foretold the downfall of Cayman for ever and ever.
All of the private sector associations, leading businessmen, work permit holders, young educated Caymanians and many others who in the past, for one reason or another, have remained more or less silent over each alarming policy and as each questionable budget unfolded under the premier’s leadership, have now found their voices.
It has been apparent since the first spending plans were presented by this administration that the premier has not taken the slightest bit of notice of the UK’s rather large hints that the country’s finances are a shambles. To quote his favourite Biblical reference, even blind Bartimaeus could see that the UK’s insistence that he cut operating expenses and seek new revenue would eventually lead to this financial crisis.
Bush has spent the last year stating over and over again that there would be no more borrowing because the UK would not allow it. But he still presented a budget to the UK with both long and short term borrowing requirements that he knew full well would be denied. The question, therefore, is what really is hidden up the West Bay magician’s sleeve?
Direct taxation is not the worst thing that can happen to a country, unless of course its main revenue source depends on a philosophy and principle that taxation on what you earn and own is wrong and things that help people legally avoid it are not.
It is also a problem introducing it when your small businesses and poorer people, including your immigrants, are already paying a disproportionately high percentage of taxation via indirect fees, such as duties, work permits, licences and other government taxes.
People earning just over $36,000 per year will be expected to give the government another $3,600. When we add up the percentage of earnings they already pay as a proportion of their income in duty alone, their rate of taxation is, ironically, among the highest in the world.
A common argument for direct rather than indirect taxation is that it is more fair to the poorer people. However, in this instance, since it appears that government plans to introduce its form of income tax on foreigners’ salaries only, this particular form of direct taxation will be a long way from fair.
Aside from all the powerful arguments against it -- it’s incredibly discriminatory elements, the fact that it will mark a sea change for Cayman, as well as the point that not all of the alternatives have yet been exhausted -- the tax seems an insane proposition, not least because of the obvious problems of collection. How government proposes to introduce a new tax authority, collection agency, enforcement arm, the ability to assess of all potential payers and an education campaign for employers in the next four weeks is impossible to imagine.
On top of that, government has a terrible track record of collecting the money it is owed and of enforcing the laws relating to what employers should pay on behalf of their workers.
But above all, this place is wall to wall with tax accountants and lawyers who have already come up with the ‘special purpose vehicles’ that will ensure that no one earning more than $45k a year will pay a penny of this tax.
The UK has spoken of sustainability and for a tax to be sustainable you’ve got to collect it and it is clear that this tax plan is about the most difficult option when it comes to actually bringing in the money. There are many powerful arguments against this tax but the difficulty in collecting it and Bush’s unlikely desire to want to go down in history as Cayman’s first Zacchaeus, to use another Bible reference, means this absolutely has to be bait and switch.
So come on, Mac! Bring on the switch. We can’t wait! Casinos? Legalized ganja? Strip bars and massage parlours? Let s face it, given the backlash in the community to the latest plan, any or all of those are likely to be far more welcome than direct taxation.
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