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At last, it’s Tax Freedom Day… but just wait until you find out when Cost of Government Day is

28 May 2014

Today is Tax Freedom Day. That means that the average person in Britain has to work 148 days of the year solely to pay taxes. Only on Tax Freedom Day do we at last start earning for ourselves.

This year there is a faint chink of cheer, in that Tax Freedom Day falls three days earlier than it did in 2013. But we still have to labour for nearly five months just to meet the demands of the tax collectors.

But what you pay in taxes this year isn’t the whole story. Remember that the government spends even more than it raises, and it borrows the difference. Despite all the talk of ‘austerity’, the current government borrows about £1 for every £5 it spends.

So crafty Chancellors could limit the burden of taxes today, and prevent Tax Freedom Day drifting later in the year, simply by borrowing instead of taxing. But they can hardly be praised for that – Britain’s taxpayers will have to pick up the bill for all this borrowing at some point in the future.

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When you add what the government is borrowing into the calculation, you find that true Cost of Government Day – the total burden of what the government actually spends – does not come until 26 June! In other words, we are really working for the government for half of the year, and working for ourselves the other half of the year.

Some people find it hard to believe that the tax burden is so high that Tax Freedom Day should fall so late in the year. They look at their pay packets and see what is taken out in income tax – which is bad enough – but forget that their employers pay the bulk of national insurance, and that as they spend their pay they are being stung by value added tax and other taxes on alcohol, tobacco, cars, fuel and much, much else.

It all adds up, without people noticing. That is why the Treasury hates Tax Freedom Day so much – because it shows, in a very accessible way, just how great the burden of government really is. The government prefers stealth taxes that go unnoticed, or tax rules of such vast complexity that nobody can work out what they are really paying. There’s a reason that Britain’s tax code is one of the world’s longest.

Every year the Treasury issues grumbling statements arguing that we should take no notice of Tax Freedom Day. But the burden of taxes is something we should notice, and something that the authorities themselves should come clean about. How else can we – and they – know if our government apparatus is delivering good value for the cash it forces out of us?

We need to control the burden, because spending and high taxes undermine economic growth, as the economists’ graph, the Rahn Curve, illustrates. And complexity does not help either – it imposes further bureaucratic cost on taxpayers.

Understand, reduce and simplify: that is the message, for tax officials and Chancellors, of Tax Freedom Day.

Eamonn Butler is Director of the Adam Smith Institute and author of The Economics of Success, published by Gibson Square Books

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  • rolandfleming

    Does the Tax Freedom Day calculation include the services and benefits people receive in return for paying tax, or does it only take into account one direction of travel? How about calculating a ‘Rent Free Day’ — all your money up to this date goes to your landlords … or ‘Food Free Day’ — all your money up to this date goes to the supermarkets. I agree tax burden is important, but there is something disingenuous about suggesting that for half the year, the money we earn just disappears to the government. It would be helpful to set these numbers in context based on other expenditure and what people get in return for it.

    • Nkaplan

      The difference with rent, food etc is that these are all items of expenditure we budget and spend for ourselves. With tax we have no choice – paying it is not an exercise of our choice and discretion – we give it over on pain of imprisonment at levels and for purposes chosen by others than ourselves.

      • Gareth

        Collectively we do have a choice. How about we all agree never to use any roads or visit the doctor? We will deal with our own garbage, home-school our children, provide our own security, run our own prisons…

        • Nkaplan

          “Collectively we do have a choice.”

          That is just another way of saying that some have the ability to force others to do as they wish. The point is that individually we do not have a choice or any discretion – we get what we’re given whether we want it or not.

          • Gareth

            That’s what living in a community entails. Some of us would prefer to spend more to have better public services, but as you’d prefer to pay less tax, we all have to reach a comprise.

            But I’m pretty sure that you use most of the services and benefit from the protections I’ve listed.

  • colliemum

    Reduce and simplify taxes? Not as long as treasury and HMRC have their say!
    I agree that we ought to include government borrowing because this will ahve to be paid back one way or the other.
    It should also be done for pure shock value: what could describe our serfdom better than having to work for nearly full six months for the government?
    The medieval serfs in feudal times weren’t as exploited by their overlords as we are now.

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