IT’S time to celebrate. Sometime today, the average UK taxpayer stops working for the government and gets to keep any money earnt during the rest of the year. It’s Tax Freedom Day!
Thinking about it, our forbearance is amazing. In The Law and the Profits, published in 1960, professor C Northcote Parkinson (inventor of Parkinson’s Law – that “work expands to fill the space available”) ran through the history of taxation, and the all-too-common waste and failure to get value for money that public sector spending tends to involve.
He argued that – historically – peacetime taxation in excess of 10 per cent of national income would lead to capital flight; above 20 per cent each tax increase would produce proportionately less (the origin of the Laffer Curve); above 30 per cent, there is an eventual decline in national influence; at 35 per cent, “there is a visible decline in freedom and stability. At 36 per cent there is disaster, complete and final, although not always immediate.”
Yet here we are, more than 50 years later, paying above 40 per cent of net national income in tax. And not only that, even at this level the government cannot balance its books. In the past 50 years, the total tax take has only exceeded total spending (total managed expenditure) in three years – 1999, 2000 and 2001.
We hear much talk of spending cuts. But since 2012, the day on which we stop paying for government spending has come back only two days – a tiny fraction. The government is still spending all the money in the economy for 196 days of the year, despite the supposedly swingeing cuts it has made. In his 2013 Budget, George Osborne forecast that public sector expenditure – total managed expenses – for the current year would rise to an all-time high in nominal (not inflation-adjusted) terms. Tax revenues are also forecast to be at their highest level ever, so “austerity” really means austerity for the taxpayer. For the public sector, austerity so far seems to mean that it gets slightly less extra to spend each year than in the past; not that it actually gets – or spends – less.
Ten years ago, Tax Freedom Day was 23 May. But 50 years ago, it came in late April, something not seen since 1965. Over the past five years, it has hovered around the end of May, edging imperceptibly later in the calendar from 24 May in 2009 to 30 May in 2013. That is based on government tax revenue. If we look at the cost of government, we actually work until mid-to-late July.
It could be worse: in the 1980s, the government at one stage took our money until 20 June. And in much of continental Europe it is rather later than here. But it could also be better: in the US, Tax Freedom Day this year was 18 April. In Australia it came on 5 April. Leaving aside the fluctuations of the business cycle, countries that tax their inhabitants less tend to have higher medium and long-term economic growth. That is something our politicians should think more about, rather than devising new ways to spend our money on their projects.
Gabriel Stein is a senior fellow of the Adam Smith Institute and managing director of Stein Brothers (UK).