Freedom comes too late

Henry

It is an unavoidable fact of modern society that everyone will pay taxes in one way or another. Most taxpayers know what their tax liability is, but do they really understand how much of their annual productivity is sacrificed to the state?

The Free Market Foundation (FMF) has been announcing South Africa’s “Tax Freedom Day” since 1997: the day on which the average taxpayer is “free” from taxes.

For example, if Tax Freedom Day falls on January 1, it simply means that there is no tax, and that those who are economically productive in the country keep all their income for themselves. In contrast, if Tax Freedom Day falls on December 31, it means that the government is sucking up every cent that taxpayers earn.

In other words, the earlier Tax Freedom Day falls, the better.

South Africa’s 2024 Tax Freedom Day is 20 May, four days later than last year when it was 16 May. This means that the taxpayer now works on average four days longer for the state, before starting to look after himself. Taxpayers in high income groups will have to pay for the state for several more weeks.

The earliest Tax Freedom Day since 1995 was April 18, 2002.

Dr. Richard J Grant, FMF Senior Consultant and Professor of Finance and Economics at Cumberland University in Tennessee, does the Tax Freedom Day calculation for the FMF.

According to Grant, to calculate a given year’s Tax Freedom Day, general government spending is divided by current GDP, which shows the tax burden as a percentage of GDP, as well as the percentage of the year that must be worked to cover that tax burden.

Annual government spending, rather than the taxes collected annually by the South African Revenue Service (SARS), is used because it includes the accumulating burden of deferred taxes through the debt financing of budget deficits, and the net wealth transfers from inflation.

The introduction of debt financing is a hidden tax that hides the real cost of government activities from current taxpayers, because it places a large part of the immediate tax burden on the shoulders of future (also unborn) taxpayers.

That day must be earlier!

The FMF believes that Tax Freedom Day should be significantly earlier. Taxes must be lower, which consequently means that government spending must also be lower.

A big government is not only an ineffective government, but also a dangerous institution.

We have been hearing for the past few weeks that local and international markets will react very badly if there is an ANC-EFF-MK government at the helm after the 29 May general election.

Why is that? Simply because the South African government plays a “leading” role in the economy.

Imagine that the government was significantly more limited – either through political tradition or written constitutional measures – and thus was responsible only for the maintenance of law and order and state defense.

Yes, even if the government were so limited, an ANC-EFF-MK administration would still be an incompetent institution that would not be able to implement law and order or state defence. But the fact that the government could not interfere with the economy and business would ensure that economic activity and production simply continued.

No one is closely watching the election of the trustee board of a residents’ association in Bloemfontein. But if such a residents’ association is placed in a position of authority over the national economy, the hairs on everyone’s necks will stand on end when the next trustee board election arrives.

The temperature of politics in South Africa is high because the government is responsible for too many aspects of our social affairs. This is an unacceptable concentration risk which over the years has already caused terrible damage to the socio-economic well-being of the country, with the collapse of Eskom and Transnet as two pertinent examples.

The move of Tax Freedom Day later and later in the year is a clear indication that South Africa’s government is too big and intertwined with the economy.

The FMF identifies state interference (interference instead of the inappropriate English intervention) in the economy as the clear source of all of South Africa’s major contemporary crises: 13 million plus unemployed, sub-1 percent economic growth, and dilapidated infrastructure for which no one takes responsibility.

The consequences of these economic blunders are enormous private crime that is out of control, and a radicalization of the ANC and South African politics in general.

If the ANC government had maintained a free market economic policy since 1994 – which would have caused 5% or more growth per year and substantially less unemployment – we would certainly not have heard anything today about expropriation without compensation, national health insurance (the expropriation of private health care), or of South Africa standing on the side of Russia and China against the West.

We certainly wouldn’t have worried about parties like the EFF and MK who together today enjoy the support of 20% of voters.

Only when the state’s interference in the economy is reduced and Tax Freedom Day begins to move closer to January 1, rather than December 31, will we know that South Africa has climbed the highway to progress.