On Saturday, May 18 South Africans stop working for the government and start working for themselves. This year’s Tax Freedom Day – the date on which South Africans will have earned enough to pay all the taxes levied by government – falls five days later than last year.
Back in 1994, it took us 101 days to pay for government before we could start earning a living for ourselves. It now takes 138 days – an additional 5 weeks of our hard work and earnings. In that time, the government has helped itself to more than half of the economic growth South Africa achieved since 1994. Considering the most recent budget speech, the long-term trend for the man on the street continues to be increasingly later Tax Freedom Days.
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.
South Africa has the 12th highest income tax burden, the 9th highest company income tax burden and the 77th highest indirect tax burden (before factoring in this years’ VAT hike). Furthermore, general government revenue doesn’t include the revenue of public enterprises such as Eskom, Telkom and others. Three years ago, there were 717 state-owned enterprises (SOEs) with total assets of R1 trillion, or 27% of GDP, and government investment amounted to 30% of total investment. If we consider this as government revenue, then Tax Freedom Day would be a month later, i.e. total government revenue, some 46.6% of the entire economy. That is exceptionally high by international standards. For our level of economic development, it is very near the highest in the world.
This is cause for concern for several reasons. Firstly, we have very little to show for it. In terms of school learning assessments, our scores have declined over the last 17 years – SA currently ranks 143rd out of 157 countries and 28th out of 39 sub-Saharan African countries (Harmonized Learning Outcome – World Bank EdStats). If you want your child to truly learn, you need to shell out a fair amount of your after-tax income. South Africa has very high crime rates and low conviction rates, also requiring us to dip into our after-tax income to hire private security. Even without accounting for massive corruption, the government spends relatively little on economic infrastructure and we suffer from electricity blackouts while paying five times more for the same power. All of these issues can be seen as additional taxes due to the wasting of revenue already collected.
Secondly, South Africa desperately needs faster economic growth. International studies demonstrate that large tax burdens and high percentages of the economy that are controlled by SOEs are associated with slower economic growth.
Thirdly, an increase in government power relative to civil society threatens the freedom so hard won in the struggle against apartheid.
Fourthly, corruption is mostly a function of opportunity. Putting more resources and funds in the hands of government merely allows more corruption to occur.
Finally, the hole through which government funnels finance to fund its spending cannot be filled by simply levying more taxes – for South Africa’s economy to grow, it is time to plug the hole and the government needs to take urgent steps to reduce its unacceptably high levels of spending.