Direct taxation has been ruled out for the Cayman Islands, according to the findings of an independent economic commission.
The Miller Report was commissioned by the Cayman government at the request of the British Foreign and Commonwealth Office.
In the fourth quarter of 2009, the FCO requested that the Cayman Islands government appoint an independent external commission to undertake a detailed economic assessment of the options for and the impact of changes in revenue sources, as well as 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 has focused on the need to cut public sector spending and emphasised that the introduction of direct taxation to the islands is not a viable option.
The report says the Cayman government’s expenditure on the public sector and its medical and pension entitlements are no longer fiscally sustainable and are significantly out of line with real world comparables.
It says it should be possible for the Cayman government to restore and maintain fiscal sustainability by undertaking major cuts in public sector spending, and in capital projects by privatising enterprises, and by selling other assets.
According to the report, 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, it adds.
The report echoes the findings of senior taxation academic Richard Teather in his recent report on the probable effects of direct taxation in the Cayman Islands, published last week.
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.” And that “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.”
Cayman Finance chairman Anthony Travers (pictured) says: “This is a very comprehensive and academic work and the FCO were clearly right to request it. As a result, Premier Bush now has a clear road map backed by independent research and backed by the FCO about what is the right policy for Cayman and as to 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.
