Wednesday, 25 May 2017, is Tax Freedom Day (TFD). It comes five days later than in 2015 and six weeks later than in 1994. This trend is likely to continue as government spending, the deficit and government debt continues to increase.
Tax Freedom Day is a measure of how much time you spend working for someone else’s benefit – government GDP – rather than your own. TFD is the day we, the people of South Africa, at last start to work for ourselves. It is the day on which we have finally paid our tax bill in full. From 1 January until 25 May, all the income earned by average South Africans make up the amount of money needed to pay for one year of government spending.
Judged by international standards, our government spending is very high – in the worst 17% of countries in the world for our level of development. Even worse, our government spending is growing at such an alarming pace that it is using our taxes more and more for consumption spending rather than for core functions and capital projects.
Taxes shift resources from the private sector to the public – government. Because South Africa’s future depends on private sector growth, TFD is important. High taxation slows, not grows, an economy. Government is both less innovative and less efficient than the private sector.
On TFD, we have the opportunity to think about the role of government in our lives and whether we are getting value for money, the right service delivery and effective programmes.
Statistician Garth Zietsman has calculated that average income earners will work five more days in 2017 than in 2015 before TFD.
He said: “Given the estimated central government revenues for 2017 as a percentage of GDP, Tax Freedom Day for 2017 is estimated to occur on May 25 – five days later than 2015. There has been a trend towards taking more of the GDP in taxes every year.”
South African citizens need to understand that the only way government can find the money to fund its spending is to increase the taxes we pay. All taxes gathered by government, whether on personal income, sales, property, corporate profits, international trade, or whatever, are eventually paid by citizens of a country.
The table below shows that TFD this year is five days later than last year and six weeks later than in 1994. Government is absorbing more resources than it did 23 years ago.
Year – Tax Freedom Day
1996 – 13 April
1997 – 16 April
1998 – 16 April
1999 – 20 April
2000 – 22 April
2001 – 20 April
2002 – 26 April
2003 – 26 April
2004 – 2 May
2005 – 11 May
2006 – 12 May
2007 – 14 May
2008 – 10 May
2009 – 26 April
2010 – 4 May
2011 – 26 May
2012 – 16 May
2013 – 20 May
2014 – 19 May
2015 – 20 May
2016 – 25 May
2017 – 25 May (5 days more than 2015; 6 weeks more than 1994)
Government is taking a steadily increasing percentage of people’s earnings, which means we have to work longer every year for government and have fewer days to work for ourselves.
Tax that government takes is spread over the year, but it is useful to illustrate just how much it is by calculating what chunk of earnings it represents to see how many days of work in the year it takes to earn the amount of money we need to pay those taxes.
This is important because higher marginal tax rates reduce the incentives for entrepreneurs who are unwilling to risk their capital or sacrifice their time and energy to earn higher incomes. High tax rates interfere with the ability of individuals to pursue their goals because they result in less disposable income.
Less disposable income means less saving; less saving means less capital formation; less capital formation means lower labour productivity; and lower labour productivity means lower real wages.