November 20 - 26, 2010
TURKS AND CAICOS WEEKLY NEWS
7
NATIONAL
John Hartley is a retired CEO. He was educated in economics and econometrics at Manchester University and Harvard Business School. He is an occasional contributor at invitational economics seminars at Brazenose College, Oxford.
Economics Column
Businessman Harold Charles (left) helped lead the scheme developed by DPS. Right is DPS president Peter Pollak.
The tiny cay is home to the region’s longest private airstrip.
Ambergris staff sent packing as scheme collapses By Gemma Handy AMBERGRIS Cay workers are out on their ear after the luxury residential development was plunged into receivership – the latest in a trio of schemes to apparently have the plug pulled by British Caribbean Bank (BCB). All operations on the tiny island have been suspended and all but a handful of security and maintenance staff sent packing. One employee told the Weekly News that foreign workers had been given paid flights home. Nine firms associated with the exclusive $1bn scheme – once dubbed the Hamptons of the TCI – have been placed in the hands of Provo-based receiver Dean Charles Boyce. The move comes four months after the collapse of Johnston International. The construction giant went into official liquidation in September, three months after employees were locked out of their headquarters by BCB. And in September 2009, BCB was appointed receiver to the fallen Nikki Beach resort. BCB chief Lord Michael Ashcroft has long denied any involvement with the controversial South Beach-style hotel, despite contradictions by its developers. The Turks & Caicos Sporting Club opened on 1,100 acre Ambergris Cay in 2008, selling home sites for up to $6.5m. The previously uninhabited island, 50 miles from Providenciales, was to eventually feature 350 private family homes with all the amenities of a five-star resort. Only a handful were ever constructed. In November 2008, 34 workers were given the boot following a slump in sales.
Only a handful of the 350 homes planned were ever constructed.
The tiny cay is home to the region’s longest private airstrip which allowed international visitors to fly there directly without having to clear immigration in Providenciales. The 5,700-foot runway is also currently closed. In addition, the island features a spa and fitness centre, environmental learning centre, bar and restaurant. Ambergris Cay was bought by Canadian businessman Henry Mensen in 1995. Mensen helped lead the Sporting Club project along with local luminary Harold Charles. The airport was named in former SkyKing chief Charles’s honour. The pair were bought out in March 2008 by developers DPS TCI Ltd and some private investors. DPS bosses Peter Pollak and Steve Schram were granted Belongership status by ex Premier Michael Misick after investing millions in
infrastructure into the scheme. DPS creates private five-star sporting communities on historic and unique properties around the region. Other sites include the Greenbrier Sporting Club in West Virginia, Snake River Sporting Club in Jackson Hole, Wyoming, the Ford Plantation in Georgia and Deep Water Cay Club on Grand Bahama Island. In May this year, Pollak spoke of sales in recent months of almost $20m. And just last month, in a website posting, bosses spoke of their excitement at opening for another high season. A notice from BCB confirmed the appointment of a receiver had been made by the bank as a lender, and as agent and security trustee for the lenders on November 11. BCB managing director Andrew Ashcroft declined to comment.
Taxation risks
LAST week we saw that choosing the size of the public sector is part of the democratic process. Professor Roe’s report says that a public sector burden of around 25 per cent to 30 per cent of GDP may be sustainable in the TCI. Thirty per cent would mean base line public sector expenditure and taxation of around $150m a year. Raising the $150m should be done efficiently, reliably and fairly. Agreeing on what is fair is a job for the electorate. But asking a voteless majority to pay for an opulent public sector is no longer an option, so 30 per cent may now be too high. Depopulation is already under way, and accelerating that trend would lead to disaster. Imposing new or higher taxes should be done with extreme caution. Considering everything it is clear to all that the core public sector must shrink to match the still shrinking economy. Economists speak of horizontal fairness, so that people in similar circumstances carry similar burdens, and vertical fairness which is about burden sharing between people in different circumstances. VAT scores well on all counts; most taxes on income less so; and most property taxes least of all. But here in the TCI it is the lack of data that should make HMG exceptionally cautious about new or increased taxes on income or property. Let’s have a look at how dangerous this can be. Consider an hourly tax on labour. Let’s say a willing employer is paying a willing worker $15 per hour for 50 hours a week and that a tax of $3 an hour is then imposed. Do you think that the employer will now buy 50 hours for $18, or that the worker will work 50 hours for $12? Possibly between those extremes is a point where less than 50 hours will be worked for somewhere between $12 and $18, either because the worker will not offer the same hours for less than $15 an hour, or the employer cannot afford 50 hours at more than $15 an hour because as costs rise he sells less product. Where the bargain comes to rest depends on what are called elasticities of supply and demand. To make it easy, say the worker takes a cut to $14 an hour, and the employer pays $17 an hour at which level the increase in his unit costs means he can only afford 42 hours a week. The $3 tax is the difference. The worker now earns $588, instead of $750, so has lost the $162. The boss is paying out $714 being the wage of $588, plus the tax of $126 and he has lost six hours production. The Government gets $126 in taxes, not the $150 it might have expected. The lost six hours of profitable labour, which is now worth at least $136, is a loss to the economy. The net loss to the economy is $10. The worker’s lost $162 in wages means he has less to spend and the consumer can expect a price increase. This is a highly simplified example of the potential ‘deadweight’ cost of taxation exceeding the achieved revenue, everybody loses. This is not just theory. It is what happens if governments are careless in choosing taxes.