Direct taxation has been ruled out for The Cayman Islands, according to a report from an independent economic commission published this week.
The Miller Report was commissioned by the Cayman Islands government at the request of the British Foreign and Commonwealth Office. In the fourth quarter of 2009, the FCO requested that the Cayman government appoint an independent external commission to undertake a detailed economic assessment of the impact of changes in revenue sources. The report also examines changes in spending and public sector entitlements that would ensure the long term fiscal and economic health of the Cayman Islands. The Miller Commission’s conclusion highlights the need to cut public sector spending and emphasizes that the introduction of direct taxation to the islands is not a viable option.
Among the report’s major conclusions are the following points:
· The Cayman government’s expenditure on the public sector and its medical and pension entitlements is no longer fiscally sustainable and is significantly out of line with real world comparables.
· It should be possible for the Cayman government to restore and maintain fiscal sustainability by undertaking major cuts in public sector spending, by privatizing investments in capital projects, and by selling other assets.
· The Cayman economy and its government’s revenue are highly dependent on the financial services and tourism industries, and additional levies or taxes on either would be counterproductive.
· The costs of introducing an authority to collect direct taxation in relation to a highly mobile financial industry would exceed any projected benefit and would be counterproductive in terms of current and projected revenue.
These findings echo the findings of senior taxation academic Richard Teather in his recent report on the probable effects of direct taxation in the Cayman Islands.
The Teather Report, commissioned by Cayman Finance, also unequivocally ruled out the introduction of direct taxation to the Cayman Islands, stressing that it would exacerbate the current economic problems in Cayman rather than alleviate them.
The Teather Report sees the solution to current deficits as a substantial reduction in government expenditure and highlights the fact that government spending in the Cayman Islands is “totally out of line with its peers, having far higher levels of public spending than any other comparable jurisdiction.”
The comments in the Teather Report are confirmed by the Miller Commission. Miller states in two central conclusions:
“Personnel costs are crippling the Cayman Government’s ability to restore its fiscal balance and by any reasonable standard are excessive and unsustainable.”
“The Cayman economy and its government’s revenue are highly dependent on the financial services and tourism industries, and additional levies on either would likely be counterproductive.”
Commenting on the Miller Commission report, Cayman Finance Chairman Anthony Travers, OBE, said:
“This is a very comprehensive and academically sound work; the FCO were clearly right to request it. As a result, Cayman Premier McKeeva Bush now has a clear road map towards the right policy for Cayman and the specific remedial revisions to the public sector remuneration and benefits packages.
“These problems have clearly developed over a great number of years, but it falls to Premier Bush to bring the Cayman Islands into line now with real world economics.
“The Miller Commission is very helpful in specifically targeting the areas where current practices must be revised and changes made. The report makes clear that there is no sustainable basis on which the Cayman Islands public sector can continue to be isolated from real world economic belt tightening.”
The chairman of the Miller Commission is James Miller, a former member of President Ronald Reagan’s cabinet who enjoys an international reputation for integrity and technical competence in fiscal matters. As Chairman of the U.S. Federal Trade Commission, Miller was instrumental in reforming the methods of that agency. Miller is joined on the commission by David Shaw. Shaw served as a Member of Parliament in the U.K. for ten years. He was the U.K. Parliament representative to the European Parliament Committee meetings on single market and financial services regulation. Shaw is Chairman of the Sabrelance group, a U.K. regulated corporate financial advisory firm.
The final member of the commission is The Hon. Kenneth Jefferson, the Financial Secretary of The Cayman Islands. Mr. Jefferson previously worked in public accounting in both Cayman and London for PriceWaterhouseCoopers and Ernst & Young.