New revenue measures to close budget gap
While government continues to work on the 2012/2013 budget and consultations with the private sector continue, Premier McKeeva Bush announced alternative revenue measures that are expected to generate some $44.3 million in 10 months and $53 million over a full budget year.
The Premier outlined the new revenue measures at a public meeting at Mary Miller Hall on Wednesday night, following a promise to tell the country what measures he had accepted as a result of consultations with the private sector since last weekend.
This past Monday, the Premier announced that government had ditched a controversial proposal to impose a 10 per cent payroll tax on work permit holders, which cause a firestorm since it was first announced on 1 August.
The scrapping of the payroll tax or Community Enhancement Fee, followed news last weekend that a group of private sector business leaders had discussed with the Premier alternative revenue measures that were deemed to be acceptable.
The private sector group had appealed to the Premier on the basis that the proposed payroll tax had “created polarity and division within our community, and this has caused us great concern.”
Outlining the alternative revenue measures against the background of the ongoing budget negotiations the government has been locked in with the Foreign and Commonwealth Office, Mr Bush noted that his government was committed to the economic model that had worked for the Cayman Islands. He said there would be no taxes on corporate earnings, no capital gains tax, no death tax and no inheritance tax. There would be no value-added tax (VAT) or property tax, as these would be far more detrimental to the economy, the Premier said.
The financial services sector, which the Premier acknowledged was “a national asset”, will bear the brunt of the new revenue measures proposed by the private sector group.
Certain categories of work permit fees will be increased. These include those of real estate brokers, agents and sales agents, financial controllers, accountants, managing directors and chief executive officers.
These fees will be raised from approximately five to 35 per cent, depending on the employment category, the Premier announced. For example work permits in these categories that cost between $3,000 and $3,999 will be increased by 10 per cent; those in the $5,000 to $5,999 band will be increased by 20 per cent and permits costing $15,000 to $24,000 will be increased by 35 per cent.
The net revenue from these fee increases is expected to be around $7.8 million.
The tourism accommodation tax will be increased from 10 per cent to 13 per cent and outgoing passengers will see an increase of $10 per person in their departure tax.
A stamp duty on certain categories of insurance policies is expected to generate $1.2 million in revenue; increases in master fund registration fees will net another $2.3 million, and new annual registration fees for exempted limited partnerships will bring in some $9.3 million, Mr Bush announced.
Boat owners with leisure (non-commercial) vessels over 30 ft. can expect to pay a fee, which will generate some $500,000 for the public coffers.
Changes were also announced to real estate transactions. Non-Caymanians buying property will continue to pay a stamp duty of 7.5 per cent. Caymanians buying property for the first time will pay no stamp duty on land valued up to $100,000. Property valued at $100,000 to $150,000 will attract a 2 per cent fee. While no fee will be levied on houses and apartments valued up to $300,000, those valued above will also rate a 2 per cent fee.
A 10–cent fee has been imposed on cigarettes, beer cans and bottles.
On the budget’s expenditure side, Mr Bush stated that previous announced cuts to certain benefits for civil servants would remain in place.
Newly hired civil servants will have to contribute to their pension and health insurance from their salaries and existing ones will begin contributing to their health care. Spouses of civil servants will now have to pay for their health coverage through the Cayman Islands National Insurance Company (CINICO).
Additional cuts to the budget include $1.5 through rationalisation of salaries in statutory authorities, $1.5 trimmed from marketing and PR costs and a reduction in the Hurricane Ivan housing allowance for police officers.
The Premier announced that capital expenditure was down to a historic low of $33 million and that there would be no new borrowings in the current budget.
Noting that the Foreign and Commonwealth Office had set a target of $76 million surplus for the 2012/2013 budget to be achieved through sustainable revenue measures as well as cuts in expenditure, Mr Bush said government has now achieved a surplus of $70 million.
The FCO rejected the government’s original budget submission made in mid-June and approved only a two-month interim budget, which expires on 31 August.