Tax Freedom Day is 30 April

Monday 30 April 2007

Tax Freedom Day is 30 April

"Tax Freedom Day this year is 30 April, as far as the central government tax burden is concerned", Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

Mr Kerr said Tax Freedom Day in New Zealand was important because it represented the day in the year when the average New Zealander stopped working for the government and started working for themselves. "In other words, with Tax Freedom Day this year falling on 30 April, 3 days later than last year, the average New Zealander has spent one third of the year working for central government."

Mr Kerr said that the calculation of 30 April was based on central government core expenditure, which amounts to 33 percent of gross domestic product (GDP).

"On that basis, Tax Freedom Day is 3 days later than that calculated a year ago when Tax Freedom Day 2006 was expected to fall on 27 April. Revised data indicate that Tax Freedom Day in 2006 actually fell on 2 May, mainly because government spending was 4 percent higher than forecast. A similar outcome is possible this year.

"As the economy grew over the 1990s, Tax Freedom Day moved forward until it reached 11 April in 2001. Since then, central government spending has accelerated relative to the growth in GDP, and the average taxpayer now works an additional 19 days a year to fund it. The government's forecasts suggest that there will be little change over the next 3 years."

Mr Kerr said that the Business Roundtable regarded government spending as the best measure of the overall tax burden because almost all government spending ultimately has to be financed from present or deferred taxation (borrowing). It 'looks through' periods when the budget is in deficit or surplus.

Indeed the government spending measure understates the true tax burden because it leaves out or underestimates elements of government spending such as local government outlays. If these are included, total government spending in New Zealand, as measured by the OECD, is projected to be 40.7 percent of GDP in 2007. On this basis, Tax Freedom Day would fall on 30 May.

This broader measure highlights the extent to which New Zealand is a relatively high-taxed country. Compared with New Zealand, Tax Freedom Day on this measure comes more than three weeks earlier in Australia (5 May) and Ireland (8 May), and at least two weeks earlier in Switzerland (10 May), Japan (13 May) and the United States (16 May).

For the first time since 2000, Tax Freedom Day for the OECD as a whole (29 May) falls before Tax Freedom Day in New Zealand. Moreover, a number of Asian and other countries have levels of government spending, and hence tax burdens, that are well below the OECD average.

If the tax burden is measured as a ratio of taxation to GDP instead of spending, the picture of New Zealand as a highly taxed country is accentuated. The latest OECD figures show that the ratio of 'general government total tax and non-tax receipts' to GDP for New Zealand is 43.3 percent for 2007, well above the average OECD ratio of 38.5 percent and nearly as high as Germany's 43.7 percent ratio.

"These calculations are important because of economic evidence that, beyond a certain point, government spending and taxation are harmful to economic growth", Mr Kerr said. "No country has achieved per capita growth rates of 4 percent or more a year on a sustained basis with general government spending of around 40 percent or more of GDP.

"In 2002 Dr Cullen said that it would be apparent by the middle of 2004 whether the government was on track to lifting New Zealand's trend growth rate to a higher level. The budget projections next month, like Statistics New Zealand's recent release showing that growth in productivity has plummeted, will confirm once again that it is not.

"It follows as a matter of logic that a necessary (though not sufficient) condition for the faster growth the government is seeking is that the share of government spending in the economy must be reduced, and the quality of spending improved, if it is serious about its aim of restoring New Zealand to the top half of the OECD income rankings", Mr Kerr said.

ENDS

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