The significance for the Cayman Islands and, particularly the financial services industry, goes far beyond the $50million intended to be raised.  The confidence placed by investors in the tax free status of the Cayman Islands is based, not simply on legislative structure, but on a belief that the core philosophy of the Cayman Islands’ people would always find direct taxation repugnant.  That they did so throughout a period where the direct taxation systems of most of the G20 countries were plunging into deficit financed chaos was of itself one of the single most relevant factors in deciding on the Cayman Islands as a safe haven for financial services.  The problem, once that tenet of faith is shredded, is that there is now no evident restraining principle in the mind of the investor on any other form of taxation being introduced. The only determining factor being that the Government of the day needs to spend more than it has earned, the one area where it now demonstrates its consistent performance.

Apparently, there has been no intention to implement what Mr Miller and Mr Shaw suggested to them. Nor is the payroll tax a solution. The back of the envelope calculations appear to ignore the costs of collections which may exceed $20m.  That fact, together with an exodus of permit holders coming on the back of the self induced folly of the roll over, will result, in no time, in the conclusion that the tax must certainly be doubled or extended to Caymanians to meet the ever increasing targeted sum.  Indeed, we do not have to look to European Convention for that latter likely consequence; The Cayman Islands Constitution itself precludes discriminatory legislation.

Nor is it as easy as all that for a Civil Service renowned for its inability to produce its own reliable accounts to create a department charged with responsibility for reviewing those of others and discerning therein the obvious avoidance planning that will be introduced. Or will that be necessary?  At a time when the public relations campaign against Cayman has built a crescendo and, in respect of which there is no meaningful or effective response from either Cayman Finance or CIG, is this in fact the move that history will show signaled the start of the slippery slope downwards?  Ironic indeed if it is, in fact, of our own doing.  A veritable own goal with a non meritorious assist from the FCO.  Only time will tell but the fragility of the fundamentals on which the success or failure of an offshore financial centre are built may indeed now be tested.

What is as troubling is the way in which those, with absolutely no experience of the matter, bandy around alternatives like Value Added Tax, possibly with its requirements to account for inputs and outputs – the most singularly inappropriate tax for a jurisdiction whose merchants and builders use largely cash based systems.  But the simple fact is that no form of taxation provides the solution.  If it did, Bermuda with its (now) 14% payroll tax would not have debt of 2.7 billion dollars. The simple truth is that the success of the Cayman Islands was built in part on the fiscal prudence demonstrated by Sir Vassal Johnson and Mr Tom Jefferson and their administrations. Without similarly principled fiscal conservatism, the pernicious and destructive toxin of direct taxation, in all its forms, will prove to be unstoppable.