When will Tax Freedom Day 2017 fall? Watch this space!
Tax Freedom Day is the day after South Africans have worked enough days in the year to earn as much as they need to pay their taxes. Heads up: Tax Freedom Day 2017 is equal to being the second worst in South African history.
Tax Freedom Day is calculated by dividing general government revenue by GDP for a calendar year, applying this fraction to the number of days in a year, and adding a day. General government revenues and GDP at market prices were obtained from the Reserve Bank Quarterly.
Since 2001, there has been a steady trend toward taking more of the GDP in taxes with government taking an extra 1.77 days of national production every year. In 1994, Tax Freedom Day was 12 April. Even that reflected a big jump in the last two years of the Nationalist Administration over the steady increases during the Botha administration. In 1972, Tax Freedom Day was 27 March. It is now taking about 44 days or six weeks more of extra work to pay for government than it did 22 years ago and 60 days more than it did 45 years ago! Government salaries alone consume more of our work today than the entire state budget did in 1994. Government seems intent on continuing this trend as the rate at which the budget will increase is larger than the expected growth of the economy.
Intense argument rages about the fairness of who gets taxed more. Rarely is there talk of the fairness of tax itself. What right does government have to force us to pay for services we might not want or may even oppose? What right does government have to expropriate our labour without our consent? Almost everyone agrees that consent is the proper moral foundation for other relationships, for example, if a woman says no, it is rape. Likewise, if a tax payer says no, it is theft. Many constitutions recognise this principle explicitly when they say government is to be by the consent of the governed.
But are taxes not unavoidable because government services are unavoidable? Not really. There are many voluntary, consensual alternatives to taxation – private markets for services, clubs, various special purpose associations, charities, families, etc. The argument that a necessary task will not be done unless it is done by government falsely assumes people lack moral sense and will not do their fair share voluntarily. Without the excuse that government will do it, the pressure to establish required moral norms increases.
Setting aside the fairness of taxation, is our government giving us our money’s worth? Actually no. The South African government is larger than about 85% of countries at our level of economic development. Government has no business doing anything else unless it has provided a reasonable degree of the rule of law. We must admit, however, that establishing and maintaining the rule of law is expensive. Better rule of law almost inevitably requires higher government consumption. Although the relationship between rule of law and government consumption is tight, governments nevertheless do vary in how much they consume for a given level of the rule of law. We can use that fact to estimate the value we get for our taxes. It turns out our government is unnecessarily expensive. By international standards, to achieve our current level of rule of law, we should be spending only 79% of what we currently do on government salaries. Alternatively, we should have rule of law standards equivalent to Germany or the UK.
While the transfers that occur in welfare programmes do not affect GDP much, profits are quite sensitive to taxation rates. When profits are more difficult to earn, investment becomes less attractive; employment becomes costlier and so new jobs and wage levels get put under pressure; and, of course, production suffers. Complying with complicated or fuzzy tax rules imposes a further tax burden on business.
We have been told that 1.8 million people (38% of income tax payers) pay 89% of all income taxes. During the American Revolution there was a popular slogan “Taxation without representation is tyranny.” Given that there are 5.22 voters for every payer of income tax, we could argue that South African taxation is a tyranny. It is also unnecessary. The US has more income tax payers than voters today. Until the early 20th century, it did not levy income taxes at all. Although we know tax is not going to go away, under current circumstances it is our duty to resist. For example, we should not work for the taxman or support higher taxes for anything. We must never pretend that we pay taxes out of our own free will. We must demand more value for what is stolen from us in the name of taxation. And we must push for representation commensurate with taxation.Author
Garth Zietsman, statistician and consultant. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.