I wrote about the upcoming strain on personal finances in my blog of November 2nd, 2012. The issue of taxes was not mentioned as I wanted to write about it individually.
As the USA struggles with the decision to increases taxes in January 2013, we should pay close attention as I believe that the introduction of direct taxation will occur in the Cayman Islands in 2013. The attempt at a payroll fee was discarded in 2012 but the need for this revenue source still exists. As the impact of purse tightening measures linked to the new FFR law is felt, the need to introduce direct taxation is more pronounced as the increase in fees on the business sector will only drive up the cost of living and slow economic growth.
The Cayman Islands enjoys its tax free status at a price. The Price of Paradise has now become too heavy for the middle to low income earners and with a worsening economy this prime destination may become overpriced. Our competitors in the region either have existing tax structures or are on their way towards introducing this necessary source of revenue.
We must accept that the high standard of living that we have become accustomed to has a price and should be prepared to contribute accordingly. The challenge is to encourage our law makers to introduce these measures fairly and gradually, taking all stakeholders recommendations into consideration.
What can you do to prepare.
The introduction of taxes should be gradual and I believe that a payroll tax ranging from 3% - 5% will be considered.
With this in mind, all consumers should start including an expense of 5% of their total income in their budget. It may be difficult at this time, but it will lessen the load when the time comes. You would have adjusted to a lower level of disposable income and would have built up a savings which may be useful at a later date.
Elections
I do not participate in political discussions but rather comment on the impact election results may have on personal finances.
A) United States – We can look forward to a tightening up of tax reporting arrangements with the Cayman Islands as efforts will be made to make tax havens less attractive. This will affect the availability of cash which restricts the levels of financing conducted by Financial Institutions
b) Cayman Islands – The introduction of taxes will be debated heavily in the next elections and coupled with job creation may be the deciding factors in the outcome of the elections. Candidates will be wise to face the music by addressing the Governments deficit with the phased introduction of taxes rather than delaying the inevitable.
Survival depends on our ability to plan for the inevitable outcome particularly when the warning signs are all around us.
By Ralph Lewis
