When we first came to Cayman in 1978, our salaries were paid with no deductions at all. Of course such bliss couldn’t last forever; politicians and bureaucrats all over the world hate that sort of thing. Nine years later, as Manager of the local Chamber of Commerce, I was the man in the middle of a bitter public campaign against a proposed 8% tax on wages and salaries. We yelled and screamed and warned that government could not be trusted, and that the proposal was a pilot scheme for a full Income Tax on all non-wage income, including business profits. Hoo-boy! In the end, the Good Guys won, and the idea has never been seriously raised again.

Last year when our colonial masters in London urged our local politicians to start taxing wages as a way of reducing the Budget Deficit, the suggestion was dismissed out of hand. Nobody here wants to re-open the old wounds. Every once in a while I use my newspaper column or blogsite (q.v.) to remind my local audience of the horror so narrowly avoided way back then. It’s accepted as gospel, now, that Income Tax in Cayman would be a TEOTWAWKI event – The End Of The World As We Know It. And who knows? It might well be, at that.

One positive thing that came out of the Big Fight of 25 years ago was the general realisation that compulsory savings probably weren’t a bad idea. So the Chamber sponsored a law to create a private Pension Fund financed by contributions of 5% from all employees (deducted from wages and salaries) and 5% from their employers. The 10% was (and is, still) invested in overseas shares and bonds by professional fund-managers, safe from government interference. Each employee has his own account, payable either on retirement (Caymanians) or when he leaves Cayman (expats).

It’s not perfect, but it was the best we could do.

 

UPDATE!!

This posting supersedes my earlier post on the topic of Income Tax in Cayman. Income Tax is now a real possibility. If I knew how to cancel that earlier post, I would. Sorry!

We have just been told that an Income Tax is in our future. Like their counterparts in Greece and vicinity, our ruling politicians have borrowed too much money and can’t pay it back. Rather than cut government waste and Civil Service empires, they propose to tax Work Permit expats’ wages and benefits, while leaving Caymanian nationals untaxed.

It is no exaggeration to say that the proposal may destroy our Offshore tax-haven sector, and therefore the prosperity of these Islands. Forty years ago, Bahamian politicians succumbed to the lure of extreme nationalism. Nassau’s tax-haven operations reduced their local presence drastically, and moved much of their business to Cayman. It took those Islands twenty years to recover. What goes around, comes around, it seems.

Even if the proposal is withdrawn – as it may well be, in the face of widespread public outrage – the seal has been broken on Pandora’s Box. Every next time there is a government budget deficit, taxing foreigners will be the first thing done to eliminate it. If not foreign residents, then our Offshore sector’s clients; if not a wages tax, then a tax on local rents, dividends and capital gains.

Doubts have sprung up in our expat communities like spring flowers. Do we have a long-term future here? Should we sell our homes and local investments? Will some of our Offshore businesses pull up sticks and move to other international tax-havens? Can we ever trust our Caymanian politicians again?

The proposal is popular with our Islands’ xenophobes – a minority among native Caymanians, though a vocal and politically powerful one. They are shouting their resentment of foreign residents at every opportunity, now – adding fuel to the always-smouldering fire of our societal divisions. Taxing expats’ incomes is bad enough; for some of us, the jeering will be the last straw.

For further updates and commentaries, check my blog from time to time.