“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” (Free Market Foundation)
In the current year it will take the average South African 137 days to pay off his taxes and only from the next day does the taxpayer then work for himself or herself – this day is known around the world as Tax Freedom Day (TFD). The 138th day of 2019 was 18 May.
So, what does this tell us?
The news is not good – in 1994 TFD was 101 days. Last year TFD was on 13 May, a slippage in one year of 5 days.
Looking at the Free Market Foundation’s formula, if GDP rose then TFD would drop. Broadly speaking, this tells us that not enough tax revenue is being channelled into investment as investment leads to a growth in GDP. This is hardly surprising when you consider that salaries are the largest component of government expenditure.
On the other side of the equation, we are being increasingly taxed. In the last few years VAT and income tax have risen whilst new taxes such as the Sugar Tax and now Carbon tax have been implemented.
The President has promised that he will reform the economy to make it more attractive to invest in South Africa – let’s hope he succeeds.
Where does South Africa stack up globally?
We are in the middle of the scale – it depends on the structure of the country. Welfare states like Norway and Germany approach 200 days whilst countries like the USA and Australia are just over the 100 day mark.
The question we have to ask ourselves is whether South Africans enjoy sufficient economic benefits to compensate for being approximately 5 weeks behind the USA and Australia?
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)