The total earnings of the average South African taxpayer from 1 January to 10 May is equal to the total taxes they have to pay for 2007. Thats 130 days, or more than one third of the year, they have been working to pay taxes. From 11 May they start working for themselves and their families.
A country's people eventually pay all the money taken by governments, whether the tax revenue comes from personal income, sales, property, corporate profits, international trade or whatever.
What value does government provide for your money? Though government seems to produce things or services of value, whenever it takes a Rand no one else can use that money to produce goods, services and jobs. That means every action taken by the government, or expense incurred by it, is an opportunity to contribute lost by everyone else. So why should we worry about that so long as someone is providing goods and services we need?
Firstly, the market is the most efficient way to channel resources toward what people really want because where there is a gap between what people want and its supply, there are profits to be made. Whenever the government departs from what the market would do (and it usually does) there is necessarily a waste of our work.
Secondly, wherever the state and the private sector do the same thing, the state almost always produces less with the same input of money and people, or else needs more of them to produce the same amount. In other words when the state does what someone else could do, it wastes resources.
Thirdly, when someone gets to do things with money that isnt theirs they have far less incentive to be responsible, especially when there is always more where the last lot came from i.e. next years taxes. On average the state must be expected to be more corrupt or irresponsible with your money than you would be.
Those are three good reasons for keeping the proportion of our money that goes to the state to an absolute minimum. You, as a taxpayer, can probably think of more.
SA needs to be much wealthier if it is to solve its problems because there isnt nearly enough for redistribution to make much impact. Only already-rich countries can afford significant welfare programmes without living beyond their means. The only way to create more wealth is through economic growth.
Did you know that growth is maximised at a fairly low tax level estimated to be around 10 per cent to 16 per cent of GDP? That is the tax level as a percentage of GDP at which SA would achieve optimum or maximum economic growth. At 35.5 per cent our tax level is way above that and so stands in the way of everyones future including that of the poor. What we need is low taxes and a growth rate of at least 7.2 per cent per annum, doubling GDP every 10 years, to rapidly reduce unemployment and poverty.
Every civil society function taken over by the state involves a move from voluntary action to coercion. So every increase in governments sphere of activity reduces your ability or right to make your own choices. Wasnt it freedom that the struggle against apartheid was about? Isnt freedom what we all want? Why lose it to tax then? Every day added to tax freedom day is a confiscation of one day from the time you get to decide what happens to your life and a waste of some of the value you contribute to society.
So if we are to solve this countrys problems we need to transfer functions away from government to civil and private society by privatising, deregulating and reducing tax.
Identifying 'tax freedom day' involves calculating the day in each year when enough GDP has been earned to meet the country's general tax bills and for people to start 'working for themselves'. Tax freedom day is a rough measure of freedom of choice and future economic welfare.
As can be seen in the graph below, the tax take in recent years has been increasing steadily. Recent reductions in personal income tax have been more than covered by more efficient collections and merely indicate a shift in who is paying. Government expenditure had been declining for a long time but there has been a recent trend to increase spending, despite last years decline, and promises have been made to increase it further in the future.
If we value our economic freedom and the country's economic growth our response to the trends shown in the graph should be to push for an earlier tax freedom day.
Garth Zietsman is a statistician at a major bank. 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.
For more details contact Garth Zietsman on 083 309 3572 / (011) 636 5846 or Eustace Davie, Free Market Foundation (011) 884 0270.