by Garth Zietsman
The total earnings of the average South African taxpayer from 1 January to 21 April equalled the total taxes they have to pay for 2003. They have now spent only 7 days working for themselves and the other 111 days working to pay their taxes.
Identifying 'tax freedom day' involves calculating the day in each year when enough GDP has been earned to meet the country's tax bills and for people to start 'working for themselves'. In short, tax freedom day is a rough measure of freedom of choice and future economic welfare. The date is calculated by multiplying the proportion of GDP (at market prices) taken for general government revenue by the number of days in a year and adding a day to the result. This year tax freedom day falls on the same day it did last year - 22 April - roughly equal to the highest it has ever been.
As can be seen in the graph below, the tax take has been maintained at levels close to the highest ever and there has been no tendency to reduce the total tax burden. Recent income tax reductions merely indicate a shift in who is paying. Government expenditure has been declining but this trend has reversed in the last two years. The government is therefore maintaining its power relative to civil society and there are indications that it might be losing its recent sense of fiscal responsibility.
A country's people eventually pay all taxes, whether on personal income, sales, property, corporate profits, international trade or whatever. Stated differently, it means that all the money spent by governments is taken from the people in taxes. It is mainly the salaries of the cabinet, parliamentarians, provincial council members, civil servants, the army, police, teachers, judges, magistrates, city councillors, municipal officials, health workers, and all the other people on the government payroll that have swallowed up the first 111 days of earnings of the entire nation. And you thought your children were your only dependents!
Have you ever thought of trying to identify the particular individual or individuals in government that you are supporting with your tax money? You can get an idea of the level of seniority of the official or officials you are supporting by calculating your total taxes, including income tax, VAT on all your purchases, fuel tax, and the hundred and one other hidden taxes, and comparing the total with the reported salaries of members of parliament or the salaries quoted in the myriad advertisements for civil servants. And if you are paying enough in taxes you may even have the honour of being Trevor Manuel's sole supporter.
"So what?" you might say, on being told about the percentage of GDP consumed by taxes. The problem is that every rand taken in taxes reduces the amount of goods and services produced in the economy since it reduces the resources available to producers. Government is a consumer of wealth, so taxation causes a net loss in value to the country as a whole, and that should concern anyone who is concerned about the nation's welfare.
Every function previously performed by civil society taken over by the state involves a move from voluntary action to coercion - a reduction in economic freedom. Transferring functions from the state to civil society through privatisation reverses the process. Privatisation reduces coercion, increases economic freedom, and also increases the choices available to citizens. Many of the functions currently performed by government could be carried out more efficiently and at lower cost by competing private firms. Instead of paying taxes to have government provide services they don't need or don't want, citizens would pay private firms for providing services they do want. At best there will be some agreement between you and the government on how to use your hard-earned money but at worst it could actually be used against your most cherished interests. For example, the taxes paid by farmers in Zimbabwe have been used to destroy their livelihood.
If we value our economic freedom and the country's economic growth our response to the trends shown in the graph, and the possibility of tax freedom day falling later every year, should be to pressure the state to keep reducing its spending and our taxes.
Garth Zietsman is a statistician at a major bank. For more details contact Garth Zietsman on 083 309 3572 / (011) 636 5846 or Eustace Davie, Free Market Foundation, (011) 884 0270
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 they are not necessarily shared by the members of the Free Market Foundation.
FMF Article of the Week: 29 April 2003