COVID-19 recession could lead to tax

| 13/08/2020 | 397 Comments
Cayman News Service
Finance Minister Roy McTaggart on CIGTV

(CNS): Finance Minister Roy McTaggart has said that if the country runs out of reserves before the tourism sector and the world economy recovers, government may have to consider taxation. Though reluctant to use the word, he said that given the current situation with the COVID-19 pandemic, things could get very tough for the public purse, with an early warning already coming from the latest financial results.

Speaking ahead of Friday’s Chamber of Commerce Economic Forum, which will be held online this year, where McTaggart will be delivering an update on the Cayman Islands’ public finances, he told CIGTV’s Donna Bush that government does have reserves but they won’t last forever.

Pointing to the latest unaudited accounts for the first six months of this year, the minister said they “tell a story that is not very pretty”, which is what he will say at the forum. However, he does not expect anyone to be surprised by that. He said that he will be presenting the forecasts for the contraction of the economy and Cayman’s financial position by end of the year.

“This really concerns everybody, as, yes, we do have reserves, but they only go so far,” he warned, adding that government may have to start making tough decisions about supporting the system and the people.

While government has done quite a bit to provide support to the unemployed thus far, as reserves are depleted things could soon change, McTaggart said.

“We could start to run out of funding,” he said. “I hope we never get there because the types of decisions you need to make are much tougher to make in terms of do we need to introduce taxation… and I hate to use the word… but if the world economy doesn’t get going and we can’t reopen the tourism sector of the economy, what’s next?” the minister asked. “The reserves that we have right now will only last us so long.”

The unaudited financial report for the first six months of 2020 show that on 30 June government had more than $500 million in the bank. But this surplus at the end of the first half of the year was due to the first three months when the economy was still riding high. The first quarter is also the period when government collects almost all of its fees from the financial services.

According to the report, in the three months from 1 April to 30 June government’s coercive revenues alone were down almost 35% compared to the second quarter 2019. As a result, the minister is no longer expecting to meet his targeted budget surplus but rahter a significant year-end deficit.

In June the government put out a tender for a financial institution to supply it with “a standby line of credit in the amount of CI$500,000,000 to address the government’s potential needs as a result of the possible loss of revenue and increased expenditure related to COVID-19”.

If this line of credit, which would in effect be a giant overdraft in the first instance rather than a loan, has been used before the expiration period, then the balance would be converted into a 15-year fixed rate amortising loan. The contract has not yet been awarded.

See the unaudited accounts in the CNS Library.

See McTaggart’s preview of Friday’s address on CIGTV below:


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Category: Economy, Government Finance, Politics

Comments (397)

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  1. JV says:

    Very interesting debate. Do anyone have any insight to when and if the EU will take Cayman off the blacklist?

  2. Anonymous says:

    There is no way CIG will be able to curb their spending on themselves. Just like there is no way the turtle farm stays open without paying them millions a year or Cayman airways at the tune of 20 million a year just to keep from bankruptcy and the big one:Civil service 100 million a year for paychecks. Cayman islands will be one of many little failed islands and states that can no longer afford to keep running on their own.

  3. Read My LIps says:

    Mr. Roy,
    In the next election, your adversary will no doubt run on a platform of streamlining Government and cutting the fat rather than raising taxes. Your best move now is to be the competition. Beat them to the punch and do the streamlining while you have the ability to make it happen. This will take away your adversary’s weapon which will be used to defeat you.

    You and the present government have done a commendable job in pulling us out of the financial hole left by the previous administration. Now it is time to adjust since we no longer have tourism to help us. We the people have had to adjust now it is time for government to do the same.

  4. StopTheCrime says:

    Nothing will cause a flight of capital, talent and resources OUT of Cayman faster than a new tax. Watch. Quote me later.

  5. And One More Thing says:

    It’s just a matter of time. Government finance is no different than household finance, corporate finance or personal finance. When you continue to spend more than you make, the well eventually runs dry. Our closed borders are decreasing our incoming flow of money by a large percent but the financial sector of the economy is still functioning and is still our main contributor to our GDP.

    As a island which produces practically nothing, we have to send our dollars overseas to get our food, clothing, fuel and other necessities for life and comfort. That money does not come back with tourists and visitors anymore. Therefore we can only count on the financial industry to keep our well from running dry. Rather than raise taxes on an already over burdened consumer, maybe we should downsize Government where possible to fit the amount of income we derive from the finance industry.

    And another conundrum is that Government is the largest employer of citizens in the country. Raising taxes is equivalent to cutting their pay. It is like a giant pyramid scheme. You cannot borrow from yourself to pay yourself. This is essentially what taxes do when most workers are employed by the taxing entity. It is nothing but a circle that will collapse over time. Learn to cut costs and waste first and try to curtail spending based on the current state of income just like a homeowner or business has to do. It works.

    Here’s an idea. Sell off the gas burning fleet if vehicles used by Government and the various Authorities and replace them with electric vehicles. The fuel savings will be greater than any proposed tax increase.

  6. Anonymous says:

    Sadly we need caymanians to be willing and capable of doing some of the jobs expats do but they are clearly not. Full employment should be possible here but the locals have no sense of urgency

    • Anonymous says:

      Tax? who ever say it who ever back it will be gone, plain and simple. Try it…

    • Anonymous says:

      In the past Caymanians did do those jobs…difference is they were given the opportunities by true Caymanian politicians with long term plans…not like the money grubbing bunch of yahoo’s we got now.

  7. Anonymous says:

    Until tourists return, we are living on limited reserves. When the tank is empty, how will CIG employees be paid?

    • Anonymous says:

      Maybe they won’t.

      Need to start looking at cutting.

      Teachers, nurses, police, prison and others all very much needed.

      Post Office workers who refuse to come to work because of “child care issues“ not so much. Fire them with no severance and freeze their health and pensions.

      Rise and repeat with a myriad of other bloated, wasteful, inept/incompetent, corrupt and not needed / “make work” departments and personnel.

      That is but a start……..

    • Socrates Belmont says:

      Don’t you think we pay enough duties; import on every single item we get from over seas, energy tax, insurance tax and son on; all that is revenue for government, immigration it’s another money making revenue for government.

    • Anonymous says:

      More questions than answers… The problem is the virus will return with the tourists, then its a question of who will survive it, not who will be paid.

  8. Anonymous says:

    Everyone of our public service entities and processes are grossly over-regulated!! Over the years we’ve just copied rules and regulations from other jurisdictions regardless of whether or not they suit us. In some cases they do but largely they just bloated the system, increased processing time, costs and frustration – and reduced efficiency!

    A review of all processes in every sector is warranted and they will see that there is “fat” to be trimmed, and the public will benefit! There is also significant waste which occurs because of a general culture of “it’s not my money”. This culture must be eradicated or at least seriously addressed and reduced.

    Creating a tax regime is a formidable task which would take years. Knowing our public service, it would not be done right the first time! Continuing to tax the same old sources of revenue is NOT the answer either.

    Start by cutting expenses in the public sector and simultaneously find new sources of revenue, before ANY additional taxation!!

  9. I'm hoping... says:

    this is just a head fake, so that when they start aggressively selling Status & PR that we will be happy to have avoid income tax.

    Sort of like when Dart’s super tall tower is only 35 stories instead of 50+.

    • Noname says:

      I don’t think this is a head fake , there have been entrenched discussions on the matter as a way to get off the EU’s blacklist and secure no double taxation accords for the island ,

      So I would not consider that a head fake but something that might happen within the coming months , the income and revenue tax are indeed coming our way !

      The taxation on consumption model will have to be let go off and .gov will have to trim down as well unless our dear .gov want to see companies , financial sector , real estate and people ship out pronto !

    • Anonymous says:

      If the UK can impose their rule to our laws via the governor we pay for, why can they not provide financial assistance?

  10. Cayman Retailer says:

    To increase revenue, lower import duty back to 20%. This WILL lower prices to the consumer which will increase consumer spending and revenue to Government. When taxes rise too high they become an impediment to productivity and actually have the opposite effect which is decreased revenue to government. All taxes are passed to the consumer in the end in the form of higher prices. Lower prices by the way of lower taxes will increase the demand for products and thus create more revenue. It can be a hard concept to grasp but look at past history here and in other countries and you will see that once this delicate threshold is overstepped, the effect is not what is hoped for.

  11. Cayman Sense says:

    This idea is shear madness. A property tax will crush real estate prices – not initially but believe me it will. As a property owner one of the reasons I bought in the Cayman Islands is because of no property tax/income tax. If there is a property and/or income tax then there is little incentive to buy here. The US Govt taxes US citizens regardless of where they live or where the money came from – tax slaves every one of us.

    Please understand once CIG gets a tax passed – it ain’t going away.

    Please understand what ever rate they say it will be – it will always be going up.

    Please understand the limitations assigned a property tax (second homes/expats/rental units) – it will be expanded to sweep more and more people under it. No escape.

    Please understand all the businesses that are here and that come here – they do and did it because of the stability of the Cayman Islands financial system. If you throw a income/property tax in the mix, then companies are going to know that whatever the current tax rate is it will be changing and it will never be changing for the betterment of the business environment.

    Please understand that Cayman does not want this – just look up the insanity of the IRS in the USA. You will have to prove you are innocent of any tax malfeasance. Google an IRS audit and see for yourself.

    Remember the old saying:
    A successful man is one that can make more money than his wife can spend. Same logic applies.

    • Anonymous says:

      “little incentive to buy here”

      Hahaha, I hear you can get a great deal in New York these days and no property taxes. yalPD

    • Expat married to a Caymanian says:

      Make the tax on expats. Caymanians should have the opportunity for affordable land and housing. It’s their little island and their generations have nothing to look forward to. We all come here because it’s better than our home countries. We stay because we benefit more than in our home countries. I raise my hand as an expat and admit that.

      • Anonymous says:

        Tax the expats (more than you already tax them). Then you will have your island back all to yourselves. You will not own the island (expats do) but you will be the only ones here paying the taxes.

  12. Anonymous says:

    Roy on Thursday “I hope we never get there because the types of decisions you need to make are much tougher to make in terms of do we need to introduce taxation…”

    Roy on Friday ““To be clear, the government is not contemplating any direct taxation.”

    Well that’s consistent then. In fact, about as consistent as telling the Chamber that reducing civil service wages would be deflationary by reducing the money spent in the local economy, and at the same time talking about the need to increase taxes – direct or indirect – which guess what – reduce expenditure in the local economy. Of course, the real difference is in who is doing the spending.

  13. Anonymous says:

    once the tax man cometh, he will just keep taking and slowly it will rise

    Look at bermuda. At once point a tax haven, then they introduced a 3% tax 18 years ago, now it’s up to 5 or 7%

    bad idea, cayman. BAD idea

    • Anonymous says:

      Bermuda is on a downward spiral – all due to their anti-expat and protectionist/race or more correctly stated (as their is but one race of people) ethnicity based politics……..

      Yep their wage tax is symptomatic of a “spending freely what came easily, realised nothing” (Captain Wentworth) government. Hopefully our idiots will not follow the same path of folly.

      Remember when the Lord of West Bay suggested the same for Cayman during the last financial crisis?

    • Anonymous says:

      Why? People still go there to work etc. Even with the tax.

  14. Tundi says:

    Will never be direct taxation, they couldn’t even collect the garbage collection fees.

    • Anonymous says:

      Come to think of it, how much is owed in unpaid garbage fees? Collecting that should address any shortfall.

      • Anonymous says:

        Residential garbage fees were stopped years ago by mckeeva govt

        • Anonymous says:

          But anything outstanding at that date is still due and payable, with interest. And Mac should be sued anyway.

        • Anonymous says:

          So why does my strata keep paying them?

          • Anonymous says:

            They probably use private contractors

            • Anonymous says:

              Wrong. I ran a strata for years and we wrote to DEH every month for a year begging to be released from DEH mandatory contract as we paid the fees ($180 per strata unit per year for collection plus splitting $1167 pa for a 4 cyd dumpster). You MUST get “permission” to go private but DEH ignores you. But if you stop paying, you get a yellow govt notice that they will follow up with legal action.

              All people who cant afford a private house and live in an apartment must pay garbage fees yet private home owners dont. Yet the 2% duty increase affected ALL equally.

      • Anonymous says:

        They did away with that when they increased duty from 20 to 22 percent. Said 1 percent would more than cover the garbage fees.

    • Anonymous says:

      Well can they easily do it off employment income by requiring employers to deduct, say 5%, off each person’s monthly salary.

      • Anonymous says:

        Just like pensions, you mean. And no doubt the same suspects will decide to just keep the cash rather than hand it over to CIG.

      • Anonymous says:

        Only the big companies will do this, maybe.

      • Anonymous says:

        Look how well that works our for our pension contributions.
        Starting to collect tax will cost them more to set it up initially so it’s a stupid idea.

      • Anonymous says:

        Sort of like a pension?

        What happens if the employer deducts it from the employees and doesn’t remit it to CIG?

        But nothing like that would ever happen, would it.

    • Anonymous says:

      Payroll tax.

  15. Anonymous says:

    We need Marco Archer back in office- To run things

    • Anonymous says:

      YES – Bring Marco back!!!!

      • Anonymous says:

        Roy is a good man and experienced accountant but he fails as a politician. He should NEVER have used the ‘T’ word in Cayman…It’s like using the ‘N’ word in Harlem.

        • Anonymous says:

          Or actually using the N-word anywhere.

          Point is not need for either.

          CIG has always had a revenue problem. When they had too much of it they did silly things and now they are beholden to the voting block if the Civil Service. No one wants to improve productivity or reduce costs.

          CNS – Are you able to find out home many people actually work for CIG and the Authorities at this point. Throw in Cayman Airways and the Turtle Farm for good measure. I bet the number would be staggering.

      • Anonymous says:

        He will never give up that cushy Stock Exchange non job with the vast salary he was given as compensation for losing his seat. I don’t blame him.

        • Anonymous says:

          Agreed the Cayman Islands Stock Exchange is so underwhelming considering the potential that is there.

    • Anonymous says:

      Unfortunately Marco lost his seat to a convicted drug dealer.

      That wasn’t an upgrade.

  16. Anon says:

    Astonishing to see caymanians on here not only should pay tax… the only fair way to ever have a payroll tax would be to only tax caymanians, as only they are allowed to access the government services the taxes would be used to spend on. Expats pay huge taxes already on everything purchased or imported and pay huge fees for everything from private healthcare to strata fees covering garbage collection etc. expats are here to do he jobs caymanians are either unqualified for or not willing to do and should not be taxed to pay for their exclusive government services.

    • Anonymous says:

      Really? So when we visit other countries that have taxes we cant benefit from we should be exempted from those too? Newsflash, Im Caymanian and have never gotten a dollar fir anything from my own “territory” for all my paid taxes and thanks to all the wealthy foreigners pushing up the cost of living here for the past 47 years, so high that I will forced to move somewhere else, I will not even benefit from my paid taxes when Im 70 either.

    • Anonymous says:

      Clearly you’re a troll…people please don’t feed the troll

  17. Anonymous says:

    There’s never been a better time to buy real estate!

    😉

  18. T1T says:

    We’ll just let the Governor help us ENFORCE this one too. The People have no say.

  19. Anonymous says:

    If tax is to be introduced, it must be balanced with reductions in fees and stamp duties across the board and *the financial services industry will love this* in that it should be fair and void of loopholes.

  20. Anonymous says:

    Wow!!! Mctaggart – u for real ??? I hope it’s the Status Holders, the P.R. Holders, the Work Permit and the Contract workers you are going to TAX ! As you have already made sure that most Caymanians don’t have employment! And Pension money long gone. My prediction is being fulfilled. Repercussions of the mass Status Grant – I said from the beginning that Cayman could not sustain this. We are only an island and now my “what if” is here. Idiots!!!! You all will be proud when you see the real evils of your bad handling of our islands.

    • Anonymous says:

      Most Caymanians work for CIG. Full pay through this whole mess, no pension or healthcare contributions.

    • Anonymous says:

      Err a status holder IS a Caymanian

      • Anonymous says:

        By paper…

        • Cheese Face says:

          I’m a paper Caymanian, my kids were born here, are they (in your opinion) also paper Caymanians?

          You do know there were no indigenous Caymanians right? Technically all Caymanians are descendants of people who came here from elsewhere.

          • C'Mon Now! says:

            I love the driftwood arguments.

            There is no difference between the “type” of Caymanian under the law, although I have been told the McKeeva specials can’t be stripped of their status like some others. Not sure if that is true.

            • Anonymous says:

              Mac’s specials can be stripped (some are probably void anyway) but stripping them requires Cabinet to follow the law. They refuse to do so. Nothing new. Move along.

            • Cheese Face says:

              “There is no difference between the “type” of Caymanian under the law.”

              Or anywhere else 😉

              We are all “driftwood” buddy, 1st gen or 5th gen.

          • Anonymous says:

            Established caymanians who have been around 100 years and know what the island was like before the influx of… everything else. They should have a right and a say.
            They say the human race originated out of Africa so what’s your point, you dont come from anywhere either.

        • Anonymous says:

          @1:11. The queen say I am a Caymanian. Get use to it. With Love

      • Anonymous says:

        That is true, but the status grants and what has happened since are a fundamental aspect of the potential destruction of our economy. The poverty (and government liabilities) imported in consequence of them is an enormous anchor around our collective necks. The financial services industry is swimming as hard as it can to keep us afloat, but those anchors are heavy, and more are being added every week.

  21. Anonymous says:

    Just off the top of my head, here are some of the current taxes we already pay:

    ▪25c tax on EVERY bank/atm card transaction
    ▪stamp duty on evrry health insurance policy
    ▪ stamp duty on every life insurance policy
    ▪ stamp duty on every vehicle insurance policy
    ▪ stamp duty on every property insurance policy
    ▪ tax on all fuel for vehicular use and electricity generation
    ▪ tax on every departure out of the Cayman Islands (built into ticket)
    ▪ tax on every arrival into the Cayman Islands (built into ticket)
    ▪ up to 42% tax on vehicle imports
    ▪ 22% tax on pretty much all our food
    ▪ licensing/regulation fees/taxes passed onto all customers with utilities inc CUC, internet, cable TV providers
    ▪ stamp duty/tax on property sales
    ▪ stamp duty/tax on all mortgages (placing + removing liens at L+S)
    ▪ govt (DEH) fees for all stratas and commercial devts for dumpster rental and garbage pick ups
    ▪ recycling fees/tax on second hand car imports
    ▪ recycling fees/tax on new tyres

    Most of us already paying 15% of our “average” income on private health insurance and pension both of which we either basically never anything in return or may never see in our lifetimes. The remaining income can barely get a lot of us by due to the cost of living.

    How does govt actually expect the majority of middle and low class to survive if they introduce YET ANOTHER tax.

    • Anonymous says:

      @10:50 am.Thanks for that. I was just about to say we are already paying tax.Haaaa

    • Anonymous says:

      Can you throw private school fees in there too please? The marginal tax rate for those on work permits is probably approaching 30% – 40% in many cases, even without any form of direct taxation.

  22. Anonymous says:

    It’s not just a need to increase revenue, the CIG must decrease expenditure. There are many options to do both, I’ll suggest some for increasing revenue (they’re not all great, but at least worth a consideration?). The worst thing possible for Cayman is to lose it’s unique selling point – because wakey wakey, offshore money couldn’t give a flying f*art how nice our beach or people or stingrays are….they want one thing, tax avoidance. And they’ll avoid it anywhere.

    so, to raise revenues:

    Become an online gaming hub (you could still ban residents, just allow in companies and tax them)

    Take a look at NOT creating our own currency, what a waste of money. The costs of a dual currency system affect all of us from the bizarre peg to the collpasing US$ to the costs of dual pricing on menus and everything in between.

    Similar point – why let the banks keep the .8 -.84 spread? that should go to Government.

    Privatize Customs – my gosh, school children could run this better.

    Put in toll booths on all the main roads into GT. $1 a drive thru…

    Annual residency fee on 2nd homes. This will NOT scare off investments, ignore CIREBA about this. All offshore jurisdictions do it. Even $10K annually will add up and people who own 2nd homes don’t worry about $10K.

    Boats – why are they not licensed?

    Turtle Farm – wtf do we own this?

    Cayman Airways – do we really need a national airline? In hurricanes, we could always keep a rolling agreement with charters to come and go and save us all.

    Pension – why not change the law and make all pension plans invest solely in Cayman? Infrastructure, etc.

    anyway…income tax? Death to Cayman.

  23. Anonymous says:

    Get these PPM Clowns OUT OF OFFICE before its too late!

  24. Anonymous says:

    Cayman is already heavily taxed. Why do you think it cost so much to live here? They just don’t call it tax its called duty or “fees”. CIG has milked this island for a generation and now they don’t know how to do actual work for money. This is them trying to figure out how they can keep living good while everyone around them is paying for it and trying to survive at the same time. Any more taxes and there will not be many still on this island that can pay it and keep the CIG welfare program going. If CIG can not discipline itself to run off what they have they will eventually take the rest of Caymania with them when they fail. UK takes over and Bam! The island can start to heal and live again.

    • Anonymous says:

      So Caymanians are supposed to run off and not live in the islands where they are born and raised?
      Smh

      • Anonymous says:

        What? Can you get someone to read it for you?Government Caymanians will have to live on what little their baby daddy government makes or they will take all of Caymania with them when it goes bankrupt. Caymanians have zero financial discipline and will spend until there is nothing left but a huge bill they can not ever pay.

  25. Anonymous says:

    NO AMOUNT OF REVENUE WILL EVER BE ENOUGH FOR OUR CURRENT GOVT until they learn to better manage OUR funds – just like how the Premier advised all of us when we were allowed to raid our pension.

    They need to cut the FAT and rebudget appropriately. Thats the basics of handling revenue/income, budgeting and spending.

    SET AN EXAMPLE FOR ONCE please!!!!

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