Sunday, 24 January 2016

Is Jersey moving to a Cayman Island model economy?

Is Jersey moving to a Cayman Island model economy?

I remember watching “Cosmos” with Carl Sagan, and he was talking about the planet Venus, which he said was effectively what happens when you have a runaway “greenhouse effect”. It was a warning that the Earth, too, might suffer the same kind of consequences and prophetic for its time.

I was thinking on that when watching, on Friday night, a programme on TV about the Cayman Islands. Companies pay zero rate of tax, which sounds remarkably familiar. The difference is that both the rich elite and the poorer people who live in the Island pay no tax.

So where does it get money for services? Fish fingers cost £8.50, on a packet which had a printed price of £1! As Jacques Peretti, the reporter, said: “A packet of fish fingers costs £8.50 – which is affordable if you’re a billionaire, but if you live on a modest income, this form of indirect taxation means you’re no better off than if you lived in the UK.”

It should be noted that one comment noted that “Fresh fish from the fish market is a lot cheaper and who know what we are eating.” But that depends on enough fish and other local produce being available: it may be an option for the small sized Cayman; it is not one for Jersey.

Jersey, too, has seen the tax burden shifting increasingly from business to individuals and from individuals to indirect taxation. GST is one example, so will be the new sewage tax. These are taxes not as an income tax, but as a tax on consumables which everyone alike - or in the case of a sewage tax, disposables which everyone supplies.

So how come Cayman doesn’t have a black hole? The support network which exists in England, and to some extent in Jersey, is virtually non-existent. The new hospital in Cayman is part of its drive to “health tourism”, as a report from 2014 makes clear:

“Health City Cayman Islands, a 140-bed hospital slated to open on Grand Cayman in February of 2014. The project, which began construction last week, will specialize in cardiology, cardiac surgery and orthopaedics. It hopes to offer those services at 30 to 40 percent of the going market rate in the U.S.”

Charities and private companies fill the gap which the government cannot support. What it does need to support, it does so by high taxes on imports. And without charities coming to help, the poor would sink. As the reporter stated:

“Welfare only makes up 20 per cent of state spending (compared to 40 per cent in the UK), so charity fills the gap for those in hardship. I saw this in action when I met the woman with the sky high mortgage – she was on the verge of eviction, and relying on a Christian charity to find her a place to live.”

The result is that the middle is squeezed out in Cayman, which has progressively become an Island of two halves: the poor underclass, and the rich.

Matt Gardner, a Washington tax analyst, stated where this model left people:

“The heart of our social contract is tax revenues. Undermining that long term makes it impossible to provide services. If developed democracies decide this is a model they want to pursue, I think they’re going to be disappointed pretty fast.”

For further reading

For many years the authorities, some parts of the private sector and those who enjoy a comfortable life in the Cayman Islands have been criticized for denying the mounting poverty. Regardless of the denial, the poverty is real, but what government does not have is empirical evidence and accurate data. Poverty is being fueled by a number of problems, including a serious decline in wages, rising unemployment among locals, which many believe is not being properly counted by government, and the rising cost of living, leaving more and more people living in poverty in an emerging underclass.

The mark-up on fuel for wholesalers and retailers in the Cayman Islands is close to being the highest in the world. That is the finding of the former Texaco Country Manager James Tibbetts who was asked by Government to perform a study on the pricing structure of fuel in the Cayman Islands. He also compared the selling price and cost of fuel with other similar jurisdictions in Caribbean.

'I presented my findings to Government on 19th September, but in a nutshell, the results show that Cayman has the highest price and the lowest taxes on fuel of any location that was studied,' Tibbetts explained that he looked at U.S. Canada, and many of the Islands in the Caribbean.

It is not clear just how much profit margin Cayman gas station owners are putting on each gallon of fuel here in the Cayman Islands.

In districts that return multiple members, Cayman uses the bloc voting system, for single member districts, it uses the first past the post system.

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