TAX Freedom Day is celebrated each year the
day after South Africans have worked enough days to pay their taxes,
calculated by dividing general government revenue by gross domestic
product (GDP), applying this fraction to the number of days in a year,
and adding a day.
Central government revenues for 2016 were forecast in the budget speech to be 30.2% of GDP and general government revenue is typically 30% more, or 39.3% of GDP.
I estimate Tax Freedom Day for 2016 will occur on May 25 — five days later than in 2015.
There has been a steady trend since 2001 towards taking more of the GDP in taxes, with the government on average taking an extra 1.8 days of national production every year. In 1994, Tax Freedom Day was April 12. Even that reflected a big jump in the last two years of the National Party administration over the steady increases of the Botha administration. It now takes about 43 days longer each year to pay for the government than it did 22 years ago. Government salaries consume more of our work today than the entire state budget did in 1994. The government intends to continue this trend — the rate at which the budget will increase is larger than the expected growth of the economy.
There is intense argument about the fairness of who gets taxed more, but we rarely talk of the fairness of tax itself. What right does the government have to force us to pay for services we might not want, or may even oppose? What right does the government have to expropriate our labour without our consent? Almost everyone agrees that consent is the proper moral foundation for other relationships — if a woman says no, it’s rape, for example. If a taxpayer says no, it’s theft. Many constitutions recognise this principle explicitly when they say government is to be by the consent of the governed.
But are taxes not unavoidable because government services are unavoidable? Not really. There are many voluntary, consensual alternatives to taxation — private markets for services, clubs, special purpose associations, charity, families and so on. Furthermore, the argument that a necessary task will not be done unless the government does it falsely assumes people lack any moral sense and will not do their fair share voluntarily. The absence of the excuse that the government will do it increases the pressure to establish required moral norms.
Setting aside the fairness of taxation, is our government giving us our money’s worth? Actually, no. The South African government is larger than about 85% of countries at our level of economic development. The very name "government" implies that its central purpose is to govern, most importantly, to impose the rule of law. Granted, establishing and maintaining the rule of law is expensive. Higher scores on rule of law indices almost inevitably require higher government consumption, but governments do vary in how much they consume for a given level of the rule of law.
We can use that fact to estimate the value we get for our taxes. It turns out our government is unnecessarily expensive. By international standards, to achieve our current level of rule of law, we should be spending only 79% of what we do on government salaries. Alternatively, we should have rule of law standards equivalent to Germany or the UK.
While the transfers that occur in welfare programmes do not affect GDP much, profits are quite sensitive to taxation rates. When profits are more difficult to come by, investment becomes less attractive, employment becomes costlier and so new jobs and wage levels get put under pressure; production suffers. Complying with complicated or fuzzy tax rules imposes a large tax burden on business.
Although much taxation is both unjust and unnecessary, it is not going to go away. Nonetheless, it is our duty to resist it. We must never pretend that we pay taxes out of our own free will. And we must demand more value for what is taken from us in the name of taxation.
• Zietsman is a statistician and consultant
Central government revenues for 2016 were forecast in the budget speech to be 30.2% of GDP and general government revenue is typically 30% more, or 39.3% of GDP.
I estimate Tax Freedom Day for 2016 will occur on May 25 — five days later than in 2015.
There has been a steady trend since 2001 towards taking more of the GDP in taxes, with the government on average taking an extra 1.8 days of national production every year. In 1994, Tax Freedom Day was April 12. Even that reflected a big jump in the last two years of the National Party administration over the steady increases of the Botha administration. It now takes about 43 days longer each year to pay for the government than it did 22 years ago. Government salaries consume more of our work today than the entire state budget did in 1994. The government intends to continue this trend — the rate at which the budget will increase is larger than the expected growth of the economy.
There is intense argument about the fairness of who gets taxed more, but we rarely talk of the fairness of tax itself. What right does the government have to force us to pay for services we might not want, or may even oppose? What right does the government have to expropriate our labour without our consent? Almost everyone agrees that consent is the proper moral foundation for other relationships — if a woman says no, it’s rape, for example. If a taxpayer says no, it’s theft. Many constitutions recognise this principle explicitly when they say government is to be by the consent of the governed.
But are taxes not unavoidable because government services are unavoidable? Not really. There are many voluntary, consensual alternatives to taxation — private markets for services, clubs, special purpose associations, charity, families and so on. Furthermore, the argument that a necessary task will not be done unless the government does it falsely assumes people lack any moral sense and will not do their fair share voluntarily. The absence of the excuse that the government will do it increases the pressure to establish required moral norms.
Setting aside the fairness of taxation, is our government giving us our money’s worth? Actually, no. The South African government is larger than about 85% of countries at our level of economic development. The very name "government" implies that its central purpose is to govern, most importantly, to impose the rule of law. Granted, establishing and maintaining the rule of law is expensive. Higher scores on rule of law indices almost inevitably require higher government consumption, but governments do vary in how much they consume for a given level of the rule of law.
We can use that fact to estimate the value we get for our taxes. It turns out our government is unnecessarily expensive. By international standards, to achieve our current level of rule of law, we should be spending only 79% of what we do on government salaries. Alternatively, we should have rule of law standards equivalent to Germany or the UK.
While the transfers that occur in welfare programmes do not affect GDP much, profits are quite sensitive to taxation rates. When profits are more difficult to come by, investment becomes less attractive, employment becomes costlier and so new jobs and wage levels get put under pressure; production suffers. Complying with complicated or fuzzy tax rules imposes a large tax burden on business.
Although much taxation is both unjust and unnecessary, it is not going to go away. Nonetheless, it is our duty to resist it. We must never pretend that we pay taxes out of our own free will. And we must demand more value for what is taken from us in the name of taxation.
• Zietsman is a statistician and consultant
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