Cayman’s new tax is a warning for Bermuda, says Richards

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Bermuda should heed what is happening in the Cayman Islands, where the Government is being compelled by the UK to raise taxes because of excessive debt.

That was the message yesterday from Shadow Finance Minister Bob Richards.

Mr Richards said in a statement: “This extraordinary situation is driven by the fact that the United Kingdom has ‘contingent liability’ for the debt of its Overseas Territories, meaning that creditors can turn to it in the event a Territory defaults or goes bankrupt. Bermuda is, of course, a UK Overseas Territory.”

He went on to say: “We’re not sure if the UK Government is concerned about Bermuda’s debt situation, but the fact that Finance Minister Paula Cox has presided over an 800 percent increase in Government debt since 2004/05 must concern every Bermudian.

“If the Government’s appetite for more debt continues at its record-setting pace — just in the last month we’ve taken on $180 million more debt — then the risk of external intervention in our financial affairs can only grow.”

The government of the Cayman Islands announced on July 25 that it will, for the first time, impose a payroll tax — but only on expatriate workers.

Work permit holders there, who make $20,000 (Cayman dollars) a year or more, will soon have to pay nearly ten percent of their earnings in tax, no matter how high their salary is — a move that could yield about $50 million in revenue for the Cayman government.

At the same time, the Cayman government will no longer require employers to make a five percent contribution to expatriate employees’ pensions. Employers will not be obligated to pay any of the payroll tax.

Cayman Premier McKeeva Bush, who called the tax a “community enhancement fee”, said he did not want to impose the tax, but “had no choice” because the UK was demanding a sustainable budget. Although both Cayman and Bermuda are British Overseas Territories, Cayman needs UK approval to pass its budget but Bermuda does not.

The leader of Cayman’s opposition party said the tax would have serious long-term implications for the country.

Bryan Dooley, a portfolio manager for LOM Asset Management, told The Royal Gazette the move could help Bermuda, by making it more attractive to business in comparison.

However, Mr Richards did not view the announcement as a positive one saying Bermuda is “not moving in the right direction” in terms of how much it spends on debt repayments.

The net debt stood at $1.4 billion as of June, just under the $1.45 billion debt ceiling.

“It is interesting to note that the UK is requiring Cayman to get onto a financial footing that is sustainable, meaning it must bring its revenue and spending situation into better balance,” he said.

“With the exception of the last six to seven years, Bermuda has always demonstrated a strong degree of responsibility in the management of its public finances. It is long past time we got back to a more responsible and sustainable path.”

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