'Tax freedom day' begins on May 12, two days worse than the May 10 of last year and thus indicating that the overall tax burden has increased despite consistent tax relief being announced.
Tax freedom day is the day on which the average South African taxpayer has earned enough money to cover this year's tax bill and can start spending money on himself or herself. In effect the total earnings of the average South African taxpayer from January 1 2008 to May 11 2008 is equal to the total taxes that they have to pay for 2008.
The Free Market Foundation (FMF) calculates this day annually by using gross domestic product and total taxes paid. These taxes include most of the 21 taxes levied in South Africa as identified in the PricewaterhouseCoopers' total tax contribution project.
A move out by two days means that the overall tax burden has increased, taking the additional day in the leap year into account, despite the Minister of Finance consistently reducing tax rates in his annual budget speech over the last few years. This extension of two days, despite significant tax relief, may be explained by changes in the tax laws such as limiting deductions or exemptions. It may also be due to bracket creep or fiscal drag as a result of the inflationary effects on income earned, explains the FMF.
According to Garth Zietsman, who was responsible for the calculation: "This means that 132 days have been spent working for the government and only from May 12 individuals start working for themselves and their families and have the opportunity to decide what their discretionary spend is. This spend can vary greatly between families but may include improvements to the house, that new car, a holiday or simply saving amounts for the trying times that may lie ahead."
"South Africa was rated at 5.6 out of 10 in the size of government category (of which tax is a component) in the latest Economic Freedom of the World ratings," adds FMF director Eustace Davie. Davie adds that SA ranks 89th out of the 141 countries rated in the study.
This size of government category measures the extent to which a country relies on choice and markets rather than government budgets and political decision-making. "South Africa could achieve higher growth rates by reducing taxes and government involvement in the economy," he said.
Tax freedom day in the US fell on April 23 this year while in Australia it was April 24.
The concept of tax freedom day was developed and copyrighted in 1948 by Florida businessman Dallas Hostetler, who calculated it each year for the next two decades in the United States. In 1971, Hostetler retired and transferred the copyright to the Tax Foundation in the US. The copyright in South Africa is owned by The Free Market Foundation, which calculates this day every year.