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Taxation
Friday, June 1, 2007
The worst ever

The total earnings of the average South African taxpayer from 1st January to 10th May is equal to the total taxes they have to pay for 2007. That’s 130 days, or more than one third of the year, they have been working to pay taxes. From 11th May they started working for themselves and their families.

Though government seems to produce things or services of value, whenever it takes a rand out of our pockets no one else can use that money to produce goods, services or jobs. There is also a question over how efficient it is. Free market chaps give three good reasons for keeping the proportion of our money that goes to the state to an absolute minimum. You, as a taxpayer, can probably think of more.
Firstly, the market is the most efficient way to channel resources toward what people really want because where there is a gap between what people want and its supply, there are profits to be made. Whenever the government departs from what the market would do (and it usually does) there is necessarily a waste of our work.
Secondly, wherever the state and the private sector do the same thing, the state almost always produces less with the same input of money and people, or else needs more of them to produce the same amount. In other words when the state does what someone else could do, it wastes resources.
Thirdly, when someone gets to do things with money that isn’t theirs they have far less incentive to be responsible, especially when there is always more where the last lot came from i.e. next year’s taxes. On average the state must be expected to be more corrupt or irresponsible with your money than you would be.
SA needs to be much wealthier if it is to solve its problems because there isn’t nearly enough for redistribution to make much impact. Only already-rich countries can afford significant welfare programmes without living beyond their means. The only way to create more wealth in SA is through economic growth.
Did you know that growth is maximised at a fairly low tax level – estimated to be around 10% to 16% of GDP? That is the suggested tax level as a percentage of GDP at which SA would achieve optimum or maximum economic growth.
But at 35.5% our tax level is way above that and so stands in the way of everyone’s future – including that of the poor. What we need is low taxes and a growth rate of at least 7.2% per annum, doubling GDP every 10 years, to reduce unemployment and poverty rapidly.
Every civil society function taken over by the state involves a move from voluntary action to coercion. So every increase in government’s sphere of activity reduces your ability or right to make your own choices. Wasn’t it freedom that the struggle against apartheid was about? Isn’t freedom what we all want? Why lose it to tax then? Every day added to ‘tax freedom day’ is a confiscation of one day from the time you get to decide what happens to your life and a waste of some of the value you contribute to society.
So if we are to solve this country’s problems we need to transfer functions away from government to civil and private society by privatising, deregulating and reducing tax.
Identifying ‘tax freedom day’ involves calculating the day in each year when enough GDP has been earned to meet the country’s general tax bills and for people to start ‘working for themselves’. Tax freedom day is a rough measure of freedom of choice and future economic welfare.
However the tax take in recent years has been increasing steadily. Recent reductions in personal income tax have been more than covered by more efficient collections and merely indicate a shift in who is paying. Government expenditure had been declining for a long time but there has been a recent trend to increase spending, despite last year’s decline, and promises have been made to increase it further in the future.
If we value our economic freedom and the country’s economic growth our response to the trends of higher taxes should be to push for an earlier tax freedom day. By Garth Zietsman for the Free Market Foundation (Gary is a statistician at a ‘major bank’ Hint: he can be contacted on (011) 636 5846). 
 

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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