Christopher Rose, a former adviser to the Cayman Islands government, explains that history has a lot to teach us about how the government of today pays for public services.
Speaking at the UCCI’s Leadership, Governance and Empowerment in the Caribbean conference, Rose said that there were lessons to be learnt from history with regard to the science of public management.
“The Cayman Islands Government’s issues with expenditure are not a new problem,” he confirmed. “Going back to 1879, the government’s annual revenue was 65 pounds, and yet it needed 540 pounds to cover its proposed expenditure,” he said.
Infrastructural growth in the late 1950s due to a growing tourism industry meant that Cayman’s government needed far more funds to pay for the development of roads and the airport. With no direct taxation on individuals and businesses available to them, the Cayman government increased import duties as a means of payment for its expenditure.
Tax policy is, according to Rose, a reflection of society’s principles.
“It’s not just about a need for funds; it’s about how to raise those funds in the least costly manner and in a manner consistent with a society’s values,” he explained.
Politics influence the way taxes are shaped and taxes are inherently controversial, he said.
In particular, export-driven countries ought to always pay particular attention to the tax regimes of the countries to which they export. As an example, the US made a huge mistake introducing the Interest Equalisation Tax of 1963, which effectively forced the bond market to head to London, with disastrous consequences for New York’s bond market, he said.
“They thought that business would eventually return, but investors had lost faith and it never did in the same volumes,” he said. Cayman’s Tax Concession Law of 1963, which provided for guarantees regarding the future taxation of companies, was “innovative and clever”. It gave the Cayman Islands tremendous advantage over countries which did have such taxes and helped shape the economy..
Cayman’s ability to determine its own taxation laws came about from the jurisdiction’s ability to pass its own laws, given to it in 1863 by the UK. Thus import duty, implemented at the mid-19th Century, became the predominant source of revenue for Cayman governments.
“Income tax has never been on the books,” he said. “It’s expensive to administer and complex. We have had a system that has served us very well over the years.”