South Africans work less for themselves and more for the government than ever before. This year Tax Freedom Day (TFD) the day the average person starts keeping what they earn is later than its ever been.
Total earnings of the average South African from 1 January to 30 April equalled the taxes they have to pay for 2005. Thats 120 days, or virtually 1/3rd (32.76%) of the year, working just to pay tax. They can now start working for themselves.
Individuals eventually pay all taxes, whether on personal income, sales, property, corporate profits, international trade or whatever. Stated differently, all the money spent by governments is taken from ordinary people in taxes. It is mainly the salaries of politicians, officials, soldiers, police, teachers, judges, magistrates, health workers, corporate and private welfare recipients, and all the other people living off the government that swallowed the first 120 days of earnings of the entire nation. And you thought children were your only dependents!
Doesnt government provide value-for-money? Well, think about it for a minute. Government may seem to produce valued goods and services, but remember that every Rand taxed reduces private resources and hence the amount of goods, services and jobs available to everyone. Since it is generally recognised that governments are less productive than the private sector, every unit of resources controlled by government results in a reduction in the overall level of goods, services and jobs. Government necessarily consumes more wealth than it produces.
Furthermore, every function taken over by government entails a reduction of freedom. When government provides services, there will, at best, be some agreement between you and the government on how to use your hard-earned money, but always less than 100% agreement. At worst, your wealth can be used against your most cherished interests and values. For example, the taxes paid by farmers in Zimbabwe have been used to confiscate their farms, and taxes paid by black South Africans under Apartheid were used to oppress them. So, every increase in government is also a reduction in your freedom to decide what happens to you and your possessions, especially your income, which should concern anyone worried about their own, and the nation's welfare.
Identifying TFD involves calculating the day in each year when enough GDP (wealth) has been produced to meet the country's tax burden. It is a rough measure of freedom of choice and future economic welfare. To calculate TFD, we multiply the proportion of GDP (at market prices) taken for general (total) government, by way of all forms of tax, by the number of days in a year and add a day to get the imaginary day after which all tax has been paid.
As can be seen in the graph, the tax take in recent years has been maintained at levels close to the peak and there has been no tendency to reduce total tax, despite the widely held myth that taxes have gone down. In truth, we have a dubious new record!
Recent reductions in personal income tax rates have been more than offset by more efficient collection and shifts in who pays. Government expenditure was declining but the positive trend reversed in the last three years. Ominously, government has been threatening even more tax-and-spend when it should anguish about the reversal of its pro-growth resolve and the apparent loss of its much-vaunted fiscal discipline.
If South Africa values economic freedom and prosperity, and the danger of TFD falling even later in future, its response to the trend should be to pressure government not to give up now not to wrench defeat from the jaws of victory but to keep reducing spending, deficits and tax. Government should build on its impressive record and move to the next logical phase of tax cuts made possible by its rectitude.
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 they are not necessarily shared by the members of the Free Market Foundation.
For more information contact Garth Zietsman on 083 309 3572 or (011) 636 5846 or Leon Louw, Free Market Foundation, (011) 884 0270 or 084 618 0348
FMF Feature Article/ 26 April 2005