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.
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