For the first 25 years or so after we left Canada in 1967, Linda & I received our respective salaries free of all deductions. It was a very comfortable feeling, to be so self-reliant.
In the three Offshore tax havens we lived in during those years, there was no Income Tax, no contributions towards our old-age pensions or retirement fund, and no deductions for medical-insurance premiums. Where we lived, we all negotiated our own medical insurance, as and to what extent we wanted, and we all saved for our own retirements. There were taxes, but they were mostly consumption-taxes, paid when we bought things. During our first nine years in Cayman, we revelled in the freedom from deductions – just as we had done in Bahamas and New Hebrides.But in 1987, it changed here. The native-Caymanian politicians of the day noticed that the traditional family-support system was breaking down, and that many of their ethnic compatriots were not saving for their retirement years.
Civil Servants were all right. They were promised generous salary-linked pensions and lifetime healthcare benefits – although no reserve was being set aside to pay for those obligations; they were paid out of Public Revenue as and when needed. Everybody else either saved up for their retirements or didn’t. What to do?
Our colonial masters in London recommended a full-blown social security scheme like the one in Britain, funded by levies on private-sector wages: 5% from employees + 5% from employers, to begin with at least. After that, who knew…? Government and its agencies would not be contributing towards the scheme, and nor would their pampered employees. Expat employees in the private sector would pay, but not benefit in any way.
I’ve told the story of the resulting storm in a piece called “Confessions of a subversive” on my personal blogsite in October last year, so I won’t go into detail here. The Chamber of Commerce (I was its first salaried Manager) campaigned vigorously against what we labelled “Income Tax” and “Payroll Tax”. London sent a little old pensions-expert to lecture our members on the need to think of the workers. A mass of small-business owners cried “we are the workers!” and chased him out of the meeting.
The draft legislation was abandoned, and the 8000 Social Security booklets were pulped. It was a famous victory over the bureaucrats and politicians. Of course, and naturally enough, the bureaucrats and politicians never forgave those responsible for their defeat. I have been fighting deportation pretty much ever since. It’s been a high price to pay, but Cayman to this day is free of Income Tax.
Under the terms of the informal peace treaty, government would continue to provide for all its employees, and continue to pay their pensions out of Public Revenue as they fell due. All private-sector workers and their employers would be levied 5+5% of their wages, but the levy would be paid into genuinely independent private-sector Pension Funds, not administered or managed by government appointees, and not invested in government bonds. Expats would receive the benefit of their contributions.
So, three years later, for the first time ever, Cayman’s pay-slips showed a deduction from gross pay – though only in the private sector. It was a radical change, and the end of our deductions-free era. Soon came compulsory medical insurance, the premiums for which were also split 50-50 between workers and their employers – also only in the private sector. Two deductions now… Mercifully, it’s still only two.
Blocked from access to the private-sector retirement money, government has had to resort to bank loans to finance its extravagances. Naturally, they over-borrowed to the point of insolvency. Eventually, and recently, London had to intervene.
There is a UK team here now, with instructions to make our politicians and Civil Servants balance their budgets. The first thing to do, the team said, is you must impose a Salaries Tax. But the local rulers are still gun-shy from that fight back in 1987. In their minds, Income Tax would be a cast-iron guarantee of electoral defeat.
Cutting government’s bloated payroll might also result in electoral defeat. Again: what to do? The most likely solution is a sustained raid on the independent Pension Funds. That would delay the day of reckoning, and that’s all that orthodox fiscal policy seems to demand these days, isn’t it?
Gordon Barlow has lived in Cayman since 1978. He was the first full-time Manager of the Cayman Islands Chamber of Commerce (1986-1988) – a turbulent period when the Chamber struggled to establish its political independence. He has publicly commented on social and political issues since 1990, and has represented the Chamber at several overseas conferences, and the Cayman Islands Human Rights Committee at an international symposium in Gibraltar in 2004. His blog www.barlowscayman.blogspot.com contains much information on life in Cayman, written from the point of view of a resident and citizen.
Read Gordon's other Expat Focus articles here.