Saturday (18 May) marked ‘Tax Freedom Day’ for South Africa – the first day of the year in which the nation as a whole has theoretically earned enough income to pay its taxes.

This means that the average South African taxpayer has had to work 138 days to pay their taxes in 2019.

According to the Free Market Foundation (FMF), this is five days later than 2018 and more than 37 days later than Tax Freedom Day in 1994.

“Unfortunately, the trend is toward TFD falling later and later and the 2019 budget speech suggests that this trend is likely to continue,” the FMF said.

“While taxes have been trending upwards, economic growth has been trending downwards. The result is that South Africans have had to carry a growing tax burden while getting poorer,” it said.

“For instance, if it fell on 31 January, government’s take of average incomes would be 8.5% and not the current 37.8%.”

How it is calculated

Tax Freedom Day is calculated every year by the FMF’s statistician, Garth Zietsman.

According to Zietsman, this 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 to bring you to the first day on which you are done paying tax.

Tax Freedom Day is determined in this way and spread over the first months of the calendar year to give us an idea of how the burden of taxes affects the average taxpayer, he said.

However, Zietsman noted that the general government revenue does not include state-owned enterprises like Eskom – if SOEs were included in the calculation, we would still be a month away from reaching Tax Freedom Day.

This would represent the tax burden at 46.6% of the entire economy.

“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.

“Calls for higher taxes in South Africa are counter-productive and following such calls entirely destructive.

“The key to permanently reducing poverty and improving the economy is to adopt policies that promote economic growth and expand opportunities for the unemployed,” he said.

Real economic freedom – the ability of all South Africans to keep and control what they earn – requires lower taxes, Zietsman said.

“A reduced level of taxation 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.”

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