Tax Freedom Day 2018

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Every earner is taxed. Through one kind of tax or another, government takes a bit out of everyone’s earnings.

This means everyone is forced to spend some months working for government.

Tax Freedom Day is the day on which average South African income-earners at last start working for themselves, the day on which they have finally paid their tax bill in full.

1994 – Tax Freedom Day was April 12.

2017 – it was May 25 – six weeks laterTaxpayers needed to work six extra weeks to pay for government expenditure in 2017 than they did 23 years ago.

Today government salaries alone consume more of our work than the entire state budget did in 1994.

2018 – 13 May (better than 2017, but still a month later than 1994).

Why is Tax Freedom Day important?

  • SA needs growth. Taking taxes from the productive private sector slows not grows the economy.
  • Return on investment in government is lower than in the private sector because government is both less innovative and less efficient.
  • Shifting resource allocation from private enterprise to government slows economic growth.
  • An increase in government power relative to civil society is a threat to our freedom.
  • Corruption is limited only by opportunity.
  • Putting more resources and funds in government hands inevitably increases corruption.

Though Tax Freedom Day is slightly earlier than last year this is not due to the good intentions of government but rather to a struggling economy and a squeeze on the profits and consumption on which taxes depend. The long-term trend is toward increasingly later Tax Freedom Days and considering the last budget speech this trend is likely to continue.

Number of days

In 1994 South Africa took 101 days before we had paid for government and we could start earning for ourselves. It now takes 133 days – more than 1 month later – and the state has helped itself to more than half of the economic growth since 1994.

Real economic freedom – the ability of all South Africans to keep and control what they earn – requires lower taxes. This would ensure that our economy is people-centric, rather than the current state-centric mindset that dominates our discourse.

Taxpayers only

It is not government, but private firms and individuals that generate wealth and cause the economy to grow. Government cannot create new purchasing power out of thin air. The mistaken view that fiscal stimulus (government policies) can pull economies out of recession persists because the jobs created through government ‘make-work’ programmes are clearly visible.

Taxes are paid from earned income and profits. Remove this incentive, as government is hell bent on doing, means less tax available to distribute for social welfare, education, healthcare, police, infrastructure and more. Calls for higher taxes are counter-productive. The key to permanently reducing poverty and improving society is to adopt policies that promote economic growth and expand opportunities for the unemployed.

Low growth and the resulting decrease in government revenue has led to increased calls for higher taxes on the rich. The mantra is that government will redistribute this wealth and thus help the poor escape destitution. However, history demonstrates that imposing heavy taxes on productive individuals and companies is a simplistic notion of how to redistribute wealth and does wide untold harm.

Taxes imposed on income and earnings have the predictable effect of reducing income and earnings for their intended beneficiaries. Entrepreneurs are robbed of the incentive to risk money, time and energy on starting or expanding businesses.

Workers and consumers pay, in no wage increases and higher prices, for the higher compliance costs of ever more regulation and taxes.

Lower disposable income for workers means lower savings, lower saving means less capital formation, lower capital formation means lower labour productivity, and lower labour productivity means lower real wages and economic growth. And while workers are faced with less disposable income, they must also pay higher prices for goods and services because of these very same taxes.

Calculation

This is calculated by dividing General Government Revenue by GDP at market prices then multiplying the result by the number of days in a year, and finally adding a day to bring you to the first day on which, on average, you are done paying tax.

Graphically



Year      Tax Freedom Day
1993     12 April
1994     11 April
1999     19 April
2000     23 April
2002     24 April
2003     24 April
2004     30 April
2005     9 May
2006     10 May
2007     9 May
2008     11 May
2011     1 May
2012     4 May
2013     8 May
2014     13 May
2015     13 May
2016     18 May
2017     15 May

2018     13 May 


Garth Zietsman | Statistician | Free Market Foundation | mail me |


 

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