Tourism tax loss eclipsed by financial fees

| 29/06/2021 | 104 Comments

(CNS): The public purse lost around CI$17 million in accommodation and cruise ship taxes during the first quarter of 2021 as a result of the closure of the borders and the shutdown of Cayman’s tourism sector. However, earnings from the offshore financial sector more than made up for that loss of revenue for government.

Private Fund Fees, a new unbudgeted revenue stream collected for the first time at the beginning of this year, brought in a whopping $44.8 million, according to the latest unaudited financial report published by the Cayman Islands Government last month, reflecting just how critical the sector has been to public coffers and the domestic economy during the pandemic.

Even without considering the revenue from work permit fees paid by finance employers, the industry generated more than $250 million for the public purse in the first three months of the year.

CIG’s revenue in the first quarter of 2021 was almost 16% higher than in the first quarter of 2020, a period before the lockdown and following a record-breaking quarter for overnight arrivals when government was at the peak of its earnings. Nevertheless, after a year of the pandemic the revenue streams for the start of 2021 appear to be outperforming what had been on track to be a record year for government earnings.

Most financial sector fees are collected during this first quarter, but the report shows that government is also collecting more taxes through other means that should outweigh the loss of tourism revenue during the second quarter.

Stamp duty on property transactions was over $21 million, $9 million more than expected in the first quarter of 2021. And despite the global pandemic, it appears that property sales here continue to break records, with April and May on track to outstrip the previous months. With the number of transactions and the value both increasing, this revenue stream is likely to cover a significant chunk of what government would have earned in the second quarter from accommodation taxes.

According to the report, domestic levies on goods and services was over 22.3% higher than expected.

While import duty fell slightly and work permit fees also under-performed during the first quarter of 2021 by $3.7 million and $2.7 million, these losses remain far smaller than the gains made in other areas, which is keeping the government well in the black.

The CIG, however, remains cautious as a result of the need to keep supporting displaced tourism workers and propping up small businesses, given that the tourism sector is not expected to make any noticeable recovery until the end of the year.

When the statutory authorities and government companies are also taken into account, the overall fiscal performance reported for the period shows a surplus of $202.6 million, or 27% more than the budget had called for.

Compared to the first quarter of 2020, central government earnings are up over 14.4% but expenses are now running higher than anticipated. Since most of the money government collects comes in during the first quarter, the $393.4 million earned in the first three months of this year is not expected to be repeated, though the spending is set to remain the same and may even increase.

“The first quarter’s performance has positioned the government to be optimistic about its performance for 2021,” official from the finance ministry wrote in the report, but concerns remain. “This will greatly be impacted by the economic effects of COVID-19 expenditures and falloff of tourism related revenue and local economic activity due the extended closure of the borders.”

While the government’s revenue appears to be remaining solid as a result of alternative revenue streams to tourism, its dependence on the financial sector is evermore apparent. Unlike the 2008 economic crash, the pandemic has done little to dent the success of this industry.

However, there are a multitude of issues that Cayman continues to face which threaten that success. These include Cayman’s own failings when it comes to meeting the yardsticks set by the Financial Action Task Force and other international regulatory standards, and the development of policies in onshore countries, such as a global corporate tax that Cayman has little control over, making it clear the new PACT Government must be equally committed to reducing the risks faced by the financial sector as to reopening the borders.

See the full economic report in the CNS Library.


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Category: Government Finance, Politics

Comments (104)

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  1. Anonymous says:

    Cayman needs to accept Bitcoin ASAP. Would become a global powerhouse

    • Anonymous says:

      All the downvotes coming from the finance industry who craps the bed whenever they hear the word “crypto” here.

      The bankers shudder when they retail investors making APY equivalent to what they do when they take other people’s money to invest then give back pennies.

      • Anonymous says:

        Why on earth do I need to transfer any of my wealth into thin air in order that I can do something I can far more easily do in USD? An answer looking for a problem if ever there was one!

        • Anonymous says:

          Because you are not either a criminal or someone gambling on the value of Bitcoin rather using it as a payment

          • Anonymous says:

            You obviously haven’t been paying attention to what is really happening in relation to Bitcoin and the crypto space.

            You might also want to take a look at how much crime takes place in the existing USD space.

            Pot, meet kettle.

  2. Anonymous says:

    I have not met one person that wants more 10 story high rises or more mass tourism. The island doesn’t need it so why are more and more 10 story hotels and 10 story condos being built that no Caymanian (or resident) can afford?

    Come on government, make a change for the better and for your people.

  3. Anonymous says:

    CNS, on a slightly different note.Can you make an equiry with the PACT Government on any plans to get a serious task force in place to deal with all these marriages of convienence

    • Anonymous says:

      Wrong government bud, your new premier supports civil unions which do not require the couple to be living together or even in a loving relationship. That opened the floodgates because we now have perfect strangers partnering and getting the benefits of marriage including residency and status. PACT supports this!

      • Anonymous says:

        I think you need to go back and get a better understanding of Civil Partnership

        • Anonymous says:

          You better pay attention

        • Anonymous says:

          @Anon 10:03 am – just read the law. There is no requirement that the applicants be in a relationship. The actual definition they use for partnership has no requirement for being together in a relationship. Any two people can legally have a civil partnership and they don’t have to be in a relationship. People were so busy assuming any opposed to the Bill were homophobic they totally missed the point that the Bill was poorly drafted!

  4. Anonymous says:

    Work permit fees should never be a part of the budget..This was the PPM way of ensuring they could balance the budget..Keep approving work permit willy nilly to keep the cash flowing..

  5. Anonymous says:

    Okie Dokie… Let’s look at your comments…

    This is exactly why we should not hurry to get back to exactly how it was before. The island is so much nicer for residents without the hoards of cruise shippers.

    No revenues from visitors… Equals unemployed Caymanians – But not you… Hmnn, I wonder where you get your income from.

    I’m much happier than I was before. It’s the perfect time to pivot direction, stop all of the high rise building, concentrate on our island environment and welcome a new type of tourist who values a more authentic experience with less crowds.

    OK, Less crowds = less money spent = less jobs paid for = less income….

    Let’s take care of our reefs, embrace our wetlands and biodiversity, stop the concrete and development and cut back the number of visitors.

    Sounds great… Just how are you going to pay for all that? You just kicked all the revenue stream out…

    Instead of making $5 each from packing 200 people on a low-quality sting ray city tour and stressing the rays and our staff, let’s have higher quality, higher-paying guests in lower numbers, staying in boutique hotels and cottages, with real personal service. It will be better for everyone.

    OK, so ‘your staff’ is stressed…and the ‘rays’ – they actually didn’t chime in! Let’s see: Higher quality, higher-paying, lower-numbers, staying in less-quality suites, with real caymanian ‘personal services…………” PLEASE! you are delusional.

    Sorry. More relaxed beach bars means I can share a toast (or 2, 3, 4 ,5 …) with an esteemed Caymanian official… And them duck when he gets fiesty. Yea, I;ll pay buck bucks for that experience! Cayman = SHAME!

    Let’s have more relaxed beach bars, low rise true Caribbean experiences. Let’s be where people come to relax and have a proper vacation, not swarm all over the island like murder hornets to visit our crappy tourist shops, and fill our landfill with thousands of plastic bottles every day.
    Tourism has a place on the island of course, but let’s rethink it now. How would you like it to be? If you work in tourism, what would your ideal day look like? How do you want your family to live here? What do you want the island to look like in 20 years? Now is the time to decide. Talk to your family, talk to your boss/business owner, talk to your MLA. Time to be brave and change for the better.

    • Anonymous says:

      I wrote the original comment that you seem so unhappy with. Just for some context. My husband and I are both dive instructors here with PR, wanting one day to become Caymanian if they will have us. Neither of us has worked for more than a year, with no prospect of returning to work any time soon. We’re struggling financially as you would expect, but still recognize that it’s not all about me. There are broader decisions to be made that affect everyone. I want what’s best for the islands, and the future generations, the climate, the environment – not what’s best for me personally. I don’t think I’m delusional. Hopeful, yes, and probably going to be disappointed, but I still have hope for the future.

  6. Anonymous says:

    How about the Cabinet reverse the salary increase that the McKeeva Govt led by Alden put in place for salary scales A to D in Jan 2021, that was 9 months after the borders were closed.

    IMAGINE, they (McKeeva and Alden) closed the borders in March 2020, AND then gave themselves a salary increase in Jan 2021 – For what????

    • Anonymous says:

      I bet you PACT and Wayne will not do one thing about it

    • Anonymous says:

      Can’t be changed by Cabinet.

    • Anonymous says:

      Imagine politicians giving themselves raises but not raising the minimum wage to a living one.

      • Anonymous says:

        No minimum wage, leave the economy alone without government overreach, give the free market a chance

        • Anonymous says:

          The so called free market has had a chance for the last 30 years, no bartender on this island is earning what bartenders earned back in the 90’s and before. The free market y’all been beating about imported poverty and slave labour, drove down wages for b a sic jobs, created slum landlords, removed any local flavor from tourism and still continue to try to do the same now in o y her parts of the economy.

  7. Say it like it is. says:

    One thing hardly ever changes, boom or bust, – the growth in our Civil Service. I counted 22 adverts in the Compass recently for Civil Service jobs. Can Mr Manderson tell us how many employees he now has, which is in addition to all the SAGC’s which follow the same policy i.e the greater number of minions, the greater the responsibility claimed by Department Heads and the greater salaries they can claim.

    • Anonymous says:

      Punch drunk on permit fees to fuel the invent a job market. Mountains of passive recurring revenue and the CIG still posted a loss!

    • Anonymous says:

      So, 5:53, seeing 22 adverts means 22 new jobs? Ever heard of staff turnover? Or are you just obsessed with bitching about the civil service and of course getting lots of “likes” from people like yourself.

  8. Notrocketscience says:

    Not sure what % of revenue real estate made but I liken that industry to the cruise ships- is the hit on the local infrastructure worth it and what is the long-term loss to future generations? It’s high time we bolster financial services and the GIS offerings to be more efficient and perhaps give them some slack on work permit fees. These people and institutions contribute hugely to our society. They fund our social welfare, they will fund educational needs. Listen to them, and let’s make sure they are here for the long-term. Empty luxury condos built by exiled developers and owned by well to dos who don’t give a crap about Cayman or the riff raff and want us off our beaches cannot be the priority anymore.

  9. Anonymous says:

    This is exactly why we should not hurry to get back to exactly how it was before. The island is so much nicer for residents without the hoards of cruise shippers. I’m much happier than I was before. It’s the perfect time to pivot direction, stop all of the high rise building, concentrate on our island environment and welcome a new type of tourist who values a more authentic experience with less crowds.
    Let’s take care of our reefs, embrace our wetlands and biodiversity, stop the concrete and development and cut back the number of visitors. Instead of making $5 each from packing 200 people on a low-quality sting ray city tour and stressing the rays and our staff, let’s have higher quality, higher-paying guests in lower numbers, staying in boutique hotels and cottages, with real personal service. It will be better for everyone.
    Let’s have more relaxed beach bars, low rise true Caribbean experiences. Let’s be where people come to relax and have a proper vacation, not swarm all over the island like murder hornets to visit our crappy tourist shops, and fill our landfill with thousands of plastic bottles every day.
    Tourism has a place on the island of course, but let’s rethink it now. How would you like it to be? If you work in tourism, what would your ideal day look like? How do you want your family to live here? What do you want the island to look like in 20 years? Now is the time to decide. Talk to your family, talk to your boss/business owner, talk to your MLA. Time to be brave and change for the better.

    • Anonymous says:

      10-storeys going in George Town.
      Let’s revitalise we say.
      Let’s build a brand new high-rise block hotel they say.
      Sad sad,

    • Guido Marsupio says:

      That’s the way it was in the early ’80s when I started coming here. It had changed so much when I returned in the late ’90s that I hardly recognized Grand Cayman. I remember attending a “Jump Up” in ’81 or so, I think it was called, wonderful street party with music and beer, all were welcome. Cayman needs to get back to that mind-set; maybe reduce the size and increase the quality as you say.

      • Anonymous says:

        So if things are so bad…why had we got record tourist numbers before covid?

        • Anonymous says:

          Because the rest of the world is going to hell faster than we are.

        • Anonymous says:

          Because the US economy was booming, a record number of US citizens now have passports and it’s easier and cheaper than ever to hop on cruise ship in Florida and tour the Caribbean.

        • Anonymous says:

          Here’s my take on why the record tourism numbers prior to Covid.

          1. There are people who have never visited Cayman of yesteryear and arrive with fresh eyes and expectations. They are looking for what Cayman offers today and have the money to spend thanks to the largest inter-generational transfer of wealth.

          2. Most tourist destinations that were once laid back and less developed have become over built or significantly different from when we visited them in the 90’s. Many I would not return to today but they will not miss my $ because they have attracted far more people than ever visited when I was there. I think they refer to this as churn, and every business experiences this.

          3. The challenge for many destinations is to find the balance of preserving what residents want, need, and can afford while meeting the expectations of their tourist market(s). Cayman has the luxury of not having to be as reliant on tourism revenues as many destinations, which would suggest that it can be more particular in the type of tourist it attracts. If tourism made up 50% of the economy, it would be a different conversation.

          My two cents.

    • D. Truth says:

      Sounds good to me, Anon 4:34 pm! Everything you said about the current problems are spot on! Can we start working on it soon?

      P.S. I wish you had begun your political career this year!

    • Anonymous says:

      👍👍👍👍👍👍👍👍👍👍👏👏👏👏👏👏👏👏👏

    • D. Truth says:

      I stand with Anonymous @ 4:34 pm.

  10. Anonymous says:

    We need to keep the door forever closed to mass market tourism!

  11. Sheriff says:

    Good to know we don’t need to worry about opening the border. (eye roll)

  12. Anonymous says:

    Why do these kind of articles only ever talk about lost tax revenue, and not the significantly higher loss of spending in the Cayman Islands. If Cayman lost $17 million in tax revenue from having no tourism, then that would be probably $200 million of spending that was lost. The Cayman economy lost $200 million from being shut over the last year, that’s all money that should have gone to the people hurting the most (small businesses).

    • Anonymous says:

      I disagree about where that tourism spend ends up. It ends up in the hands of hotel chains and wealthy hotel owners, and the few elite (we know who they are) that own or have a hand in almost all of the businesses on the island.
      Very little of it ends up in the hands of the people who actually need and deserve it. Not so many Caymanians work in the tourism jobs because those are typically very low paid and are filled therefore by WP holders. Let’s transition to better quality rather than higher quantity and invest in education and quality of life.

      • Anonymous says:

        I for one was part of the tourism fleet and I was doing very well.

      • Anonymous says:

        5.55pm – virtually every single small business in the cayman islands benefits from tourism. AC companies, restaurants, plumbers, watersports companies, and the list goes on.

        The problem is that most caymanians dont want to work in the private sector due to the high number of fake civil service jobs (welfare system).

    • just me. says:

      Why did they borrow all that money then? How will they pay it back later? Just a thought.

  13. Anonymous says:

    And in other news, the financial services powerhouse continues the money printing machine in the background.

    Would be good if our idiot politicians could pay attention and try and improve financial services (FATF, gray list ect) rather than worring about renaming roads and other stupid $hit.

    No one in gov seems to care about financial services – a common theme from people i work with in the industry.

    While im at it, the ROC and CIMA need some …. help

  14. JTB says:

    This story begs the question why CIMA is on an apparent mission to shut down the financial services industry….

  15. Anonymous says:

    So looks like we don’t need cruise ships any longer.

    • Anonymous says:

      AMEN!

    • Anonymous says:

      Ignorant comment

      • Anonymous says:

        The comment was insightful not ignorant. Mass Cruise tourism has been a blight on Cayman for years. The pandemic let us know that it is a blight that we do not need to tolerate any longer.

    • Anonymous says:

      No cruise ships?…………….. Sounds good to me!

    • Anonymous says:

      No cruise ships?…………….. Sounds good to me! Less crowded streets!!!

    • Anonymous says:

      Yup. Good riddance. Hopefully when stayover returns they will appreciate the difference too and it will increase the desirability of that product.

      • STX says:

        Stayover always appreciated the “no ships are in” days. Heck, we would race into town when we saw them on the horizon just to get the shopping done.

    • Anonymous says:

      Many would like cruse ships to never return but they will at some point. Suggest we raise the per passenger fee by 500% which would maintain gov. Income, ensure fewer but higher quality guests willing to actually spend money and tip the captains. Better for everyone?

  16. Anonymous says:

    Eveeyone knows Cayman continues its corrupt financial practices for which they apparently ramped up this last year. The real estate boom is really suggests this practice, despite the Compass’s story a week ago or so trying to explain it off as asset redesignation practices. The fact of the matter is the real estate boom is not driven by Caymanians, it is not driven by tourists wanting second homes, it is offshore sight unseen investment. Given Caymans past and apparently continued history of the land of creative financial dealings, money laundering certainly is a concern. Waiting for the inevitable fall.

    • Anonymous says:

      Money laundering will ultimately be our achilles heal.

      We need to deal with this now.

    • Anonymous says:

      Interesting comment. How does it explain the real estate boom in Toronto and New England?

    • Anonymous says:

      Nothing worse than a know-it-all that knows nothing.
      Quick Question: If what you say is true, then how do you explain the hotter than hot real estate markets in the U.S. and Canada – even in places tourists rarely go? Here’s a hint: It has to do with money.

      • Anonymous says:

        They are resident citizens taking advantage of low interest rates, purchasing primary and secondary homes within their home nation. Not the same as Cayman.

        • Anonymous says:

          That’s happening here too. My former neighbour bought in our development and one other pre-construction- they flipped both and bought on SMB with the profit.

          • Anonymous says:

            I’ll take comment 4:40am as BS for $200 Alex.

            • Anonymous says:

              Sure – I mean it actually happened but okay. Not sure which part of this isn’t believable to you. I could flip my unit and be halfway to what they did – I know that because I bought pre-construction as well and my valuation tells me if I owned one more unit, and sold both, I’d have enough money to move to SMB quite easily. If you double your money on two properties, shouldn’t you be moving to a new neighbourhood? Again, not sure why you wouldn’t believe this.

    • Anonymous says:

      Real estate boom happening in many places and nothing to do with money laundering. Suspect it has far more to do with a.) a pandemic 2.0 bolthole and b.) to escape the inevitable onshore tax grab. c.) alternative to Hong Kong d.) Cayman is still cheap compared to lots of places

    • Anonymous says:

      You seem bitter about something. Missed out on a big real estate commission bobo ?

    • Anonymous says:

      This is an uneducated statement straight out of a fictional novel.

  17. Anonymous says:

    Where is the exodus of private equity funds out of Cayman that the lawyers predicted would happen with the new registration requirements for closed-end funds?

    Just didnt end up happening.

    • Anonymous says:

      Do you work in financial services? Clearly not…

      Plently of people went to the BVI, and plently just didnt even register!!!!

    • Anonymous says:

      Also, the number of funds predicted to register and the number of entities that actually registered was around 50% off.

      • Anonymous says:

        early predictions based on not much more than a finger in the air (which highlights the need to regulate) so I would hardly use this particular metric as commentary on how successful the initiative has been

      • Bobby says:

        Depends on who you asked at the outset. Some had it dead on early days.

    • Anonymous says:

      Pretty dumb comment given you have no baseline for how many funds would or wouldn’t have closed or opened anyway. The best you can say is the funds industry is doing well despite the new law requiring a superfluous audit; but it could have been doing even better; you just don’t know.

    • CSF says:

      It’s hard for existing funds to move jurisdiction on relatively short notice.

      We don’t know what new business we are losing out on and won’t notice for a few years until trends start to develop.

      In any event I don’t think the lawyers were as opposed to registration of those funds per se as they were to local audit sign off, which offers questionable tangible benefits to managers and investors.

    • Anonymous says:

      Try talking to closed end fund managers who would only able to raise $15-20M. They no longer have interest in Cayman, given the level of costs and flat-out PITA.

      • Anonymous says:

        Yep it’s not just funds leaving that are a concern but funds never coming here in the first place.

  18. Anonymous says:

    pure waffle. cig is losing $15-20m each month due to border lockdown.
    what is the plan going forward?

    • Anonymous says:

      Is your statement True?

      What sources can you share to back up your statement?

      Or is it just the story you are telling yourself?

    • Anon says:

      No plan ! Politicians continued to be paid , civil servants continued to be paid
      Screw the tourism and Private sector

    • Anonymous says:

      Don’t need no cruise ships, tourists scrambling on dangerous boats to stingray city, or crowded taxi vans and T-shirts…

      Move forward and teach your children other skills beyond being a doorman at a hotel?

      • Anonymous says:

        Caymanians don’t work as doorman at hotels here. You must not be from here.

        • Anonymous says:

          The comment was aspirational – look it up.

        • Anonymous says:

          2:25p – They certainly did back in the olden days. (2+ previous generations ago) But no longer.

          It used to be a good jumping off place. I know a few that did very well for themselves that started as a ‘doorman’.

          But nowadays, entry level top end 5 figure is the expectation. They (Caymanian kids these days) don’t even like starting at the bottom in an office job!

          Hey you kids!! Get outta my yard! lol But I’m serious. Just sounding like an old person remembering the good ol’ days.

      • Anonymous says:

        Since you actually have to be nice to people if you’re a doorman, many around here aren’t qualified for the job anyway.

        • Anonymous says:

          Is there any decent job that locals are actually “qualified” for?

          Willing to bet a good portion of “qualified” WP holders that are friends with the HR manager (also on WP) go to government university/company-paid studies to earn the same “qualifications” and salary that “qualified” them for their positions in the first place.

          Qualifications come after you complete the course not before, right?

          Apparently, if HR is from the same country as you, free passes are handed out and being nice is actually rewarded, not taken advantage of.

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