Yesterday, 12 May, marked (predicted) Tax Freedom Day 2022. Tax Freedom Day (TFD) is a measure of how much time people spend working for someone else’s benefit – government GDP – rather than their own. TFD is the day the people of South Africa at last start to work for themselves. It is the day on which taxpayers have finally paid their tax bills in full. From 1 January until 11 May, all the income earned by average South Africans is needed to pay for one year of government spending.
The average South African taxpayer had to work 131 (predicted) days in 2022 to pay their taxes. In 1994, South Africans took 101 (actual) days to pay for government expenditure, 30 days fewer than in 2022. Unfortunately, says the FMF, the trend is towards TFD falling later and later as government spending, the deficit and government debt continue to increase.
According to FMF’s statistician, Garth Zietsman, ‘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.’
TFD is determined in this way and spread over the first months of the calendar year to give an idea of how the burden of taxes affects the average taxpayer. It is accepted that some lose more and others less of their hard-earned income in taxes, but the average, measured in days of the year, confirms what people know intuitively: the taxes we pay are too high.
Says Zietsman: ‘South Africa has the 12th highest income tax burden, the 9th highest company income tax burden, and the 14th highest non-resource tax burden worldwide.’ He adds: ‘For our level of economic development, that is exceptionally high by international standards.’
Government produces little to show for the high tax burden. Zietsman points out that ‘Our educational system is dismal and the crime rate is high with most serious crimes going unsolved.’ While taxes have been trending upwards, income per capita has been trending downwards. The result is that South Africans have had to carry a growing tax burden while getting poorer.
Growth requires lower taxes. Reduced taxes would provide a greater incentive for private individuals to work, save and invest. The net result would be greater investment, more innovation, a stronger economy, less unemployment, less poverty, and a more contented populace.
Government is both less innovative and less efficient than the private sector. South Africa’s state-owned enterprises are numerous and usually produce large losses that require regular substantial bailouts at taxpayer expense. High taxation slows, not grows, an economy.
TFD reminds us to think about the role of government in our lives and whether we are getting value for money.