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The article by Leon Louw, CEO of The Freedom Foundation, and the founder and past President of the Free Market Foundation explains what Tax Freedom Day (TFD) is, how the government’s spending affects TFD, and why it is important for taxpayers to know the date and variables involved.
Tax Freedom Day is a day when citizens celebrate the end of the time when they work for the government and start earning for themselves. In South Africa, Tax Freedom Day in 2023 fell on the 14th of May. This means that the government will have taken 36.4% of the nation’s income by that date. The TFD may be later than usual this year, but it is still 15 days earlier than the 2019 peak. While TFD may not tell much about individual tax burdens, it is important for taxpayers to know the date and the variables involved in its calculation. The government’s spending affects TFD, and taxpayers need to know what their money is being spent on.
By Leon Louw*
Sometimes bad news is good news. South Africans will be liberated on Sunday. Until that day they work for the government. Sunday 14 May is Tax Freedom Day (TFD) for 2023, the day that is the calendar equivalent of how much of our income the government takes. Although it is arguably by far the most important aspect of the annual Budget, TFD is never mentioned.
According to this year’s Budget “general” government revenue – all forms of taxation – will be 36,4% of national income this year. That percentage gets us to 14 May which is 134 days into the year. Sunday is the day on which the average person has earned enough to pay for what the government spends. It is 2 days later, or a quarter of a percent of the nation’s wealth, more than in 2022.
Remember that whenever you see or deal with a “public servant”, you work to pay them, and ask whether they produce good value for your money. Many bureaucrats do not; some, like nurses, do.
The government’s share of everyone’s income increased by an average of 0,3% per year since 1992. That may not seem much, but it means that South Africans effectively work an extra month – 32 days – for the government. The average person effectively works 134 days for the government compared with 102 days, or until 12 April, in 1992.
From a TFD perspective, there is no difference between people in and out of government. Every rand taken by the government is a rand someone loses, and a rand that would have created private wealth and jobs.
Mercifully, TFD, although later, is 15 days earlier than the 2019 peak. However, if the government succeeds in its plan to improve revenue collection, people will work longer for the government.
Since TFD refers to the population’s average tax burden, it doesn’t tell you about differences between individuals. Most tax is taken from fewer than 10% of the public (“the rich”). For them TFD is much later in the year; closer to 4 August, or 246 days into the year. Since the maximum tax burden on the wealthiest is about 67%, later TFDs make little or no difference to high income earners. “The poor”, on the other hand, bear the greater burden of later TFDs and benefit more from earlier TFDs by keeping more of their income.
Before governments can spend, they must take. TFD tells us how much they take. Through the annual Budget the government tells us why it takes so much – what it will do with it. Most people welcome much of what they do, such as healthcare and services, and suffer from much, such as “red tape” and controls. Much of what the government takes funds themselves: salaries, perks, overheads etc before delivery of essential services.
How revenue will be spent is widely reported, but usually as if it is the government’s money. There is no such thing a “government money”. All the money is our money. Knowing that nearly 40% of all your work (if you are close to average) is for the government, you should know and approve of where your income goes.
Most people would be shocked to know what happens to much of their money. Through National Health Insurance (NHI) when fully implemented, for instance, you will be paying for rich people who currently pay for themselves. You will be stripped of your right to choose because you will be confined to healthcare providers, such as doctors, assigned by bureaucrats who know nothing about you. You will also be funding millions of people who currently pay their own way for “traditional” or “alternative” care. Everyone will be in a government healthcare straitjacket and forced to accept prescribed “allopathic” care. This is the sort of thing for which you have been working all of this year so far.
The only iron law of economics is TANSTAAFL (‘there ain’t no such thing as a free lunch’). This means that nothing from government is “free”. Every cent allocated to A is diverted from B, C, D etc. “Free” stuff is extremely expensive. Accordingly, funds diverted from crime prevention to SAA, for instance, means more rape as the trade-off for more flights for the rich. Whenever someone says more should spent on something, say street cleaners, they should add what they want less of, perhaps education.
Loadshedding is costing us many billions or trillions in lost economic activity, and many more billions in Eskom subsidies, and explicit or implicit guarantees, which money would be in our pockets if the government ends the crisis by liberating the energy market. It gets worse. The government has budgeted for subsidies to delinquent municipalities that pocket electricity revenue instead of paying Eskom.
The government wants to reduce tax-spend by way of pro-growth reforms across all departments (“Operation Vulindlela”), and claims real progress, but elusive growth remains close to zero.
The amount wealth extracted from the economy is a significant part of why we have been “grey listed”, which is deemed a factor in harsh new forex controls. Phasing forex controls out was promised a generation ago, and should have been long relegated to the trash heap of history.
The government finally seems to grasp the economic growth imperative. It is like finally admitting to being an alcoholic. For growth, they must unleash wealth-creating investment. Investment is not achieved by whimsical “investment summits”, but genuine investor-friendly (free market) reforms. The single best prosperity determinant would be a much earlier TFD, preferably before the end of March.
Unfortunately the government still wants to waste your money on failed SOEs and other apartheid dinosaurs. Apart from rewarding corruption, SOEs elbow out private and profitable wealth-creating rather than wealth-consuming investments. Other key determinants include that investors, not government, must be given freedom to control their own money and have guaranteed property rights.
Your money will not be used to prioritise education as you might have hoped. The average level of skills is another of the key determinants of prosperity. The government continues failing to convert education spending into skills as opposed to valueless “qualifications”.
It is not all negative. This year’s Budget envisages trimming government slowly in a manner that would get TFD to where it was when we had high growth and low unemployment. A better South Africa needs an earlier TFD in which the people keep more and the government takes less.
- SA’s Tax Freedom Day: Exploring the reasons behind the country’s high tax burden
- ICYMI: Section 12B tax-deductible investment explained
- Jaltech launches tax deductible solar investment
*Leon Louw : CEO The Freedom Foundation, founder and past President of the Free Market Foundation
With assistance from Garth Zeitsman: Consulting Statistician to the Freedom Foundation
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