On Tuesday, May 19, South Africans stopped working for the state and started working for themselves. That day was Tax Freedom Day and this year it fell one day later than last year. At least that would have been the case if we weren't subject to Covid-19 and its lockdown. Tax rates will be lower because profits are being squeezed more than anything else.
To put this into greater perspective, back in 1994 it took 101 days to pay for the government before South Africans could start earning for themselves. It now takes 139 days - more than five weeks longer - and the state has helped itself to more than half of the economic growth since 1994.
The long-term trend is towards later Tax Freedom Days, and considering the most recent budget speech, this trend is not likely to change.
Tax Freedom Day 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. SA has the 12th highest income tax burden in the world, the ninth highest company income tax burden, and the 77th highest indirect tax burden (before the increase).
Furthermore, general government revenue doesn’t include the revenue of public enterprises such as Eskom and Telkom. Four years ago there were no fewer than 717 state-owned entities (SOEs) with total assets of R1-trillion, or 27% of GDP, and government investment amounted to 30% of total investment.
If we consider this as government revenue, Tax Freedom Day would be a month later, that is, total government revenue is really some 46.6% of the entire economy. That is exceptionally high by international standards. For our level of economic development it is almost the highest in the world.
You may ask why that is a concern. One reason is that government tends to be less efficient than private enterprise and our government performs badly by the standards of governments generally. In short, tilting the economy towards government is a waste of resources and tends to slow growth.
Secondly, corruption depends on funds going through the government. This massive level of theft and abuse would be curtailed if the government had less control over the economy and less funding.
Finally, what we are experiencing under the lockdown is a perfect example of what happens when the government has total say over the economy and our lives. If you don’t like that experience, or things such as the banning of private solutions to hunger by government decree, you ought to be opposed to large government and ever-later tax freedom days.This letter was first published on BDLive on 21 May 2020