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Madsen Pirie: I work for the government...

Madsen PirieMadsen Pirie is President of the Adam Smith Institute.

In fact, we all work for the government because the taxes we pay support its activities.  For most of us that includes income tax and National Insurance.  For some it includes tobacco duty, alcohol excise duty and fuel tax.  For all of us it includes VAT, and for most it will include council tax.  The list of the different taxes we pay to fund government is mind-bogglingly long, but the Adam Smith Institute has painstakingly listed and costed them all, as it has done for 25 years in order to calculate how long we spend working for the government.

The good news is that the average person in the UK ceases to work for government from today.  In other words, today, May 30th, is Tax Freedom Day, after which people start working for themselves.  The concept is a simple one.  We add up all the taxes, direct and indirect, visible or stealth, and work out what they amount to as a proportion of the UK's net national income.  This year it comes to 41.5 percent.  That same percentage, expressed as a proportion of days in the year, comes to 150 days.  So, if we had paid everything to the government since January 1st, it would have taken 150 days before the average person had paid the amount the government takes from them each year.

It might be good news that today is Tax Freedom Day, but the bad news is that it falls a day later than last year.  This means that for all the talk of austerity and spending cuts, the government is spending more of our money this year than it did last year (after correcting for the extra day that a leap year brings).

Gordon Brown used borrowing to conceal his big spending, and this coalition government is still borrowing.  If you add that borrowing to what government spends from tax receipts, the picture is even worse, with the “cost of government” day not being reached until July 13th, another month and a half away.

Tax Freedom Day has always been deeply unpopular with the Treasury, with successive Chancellors of the Exchequer, and with those whose ideology calls for big spending.  The reason for this animosity is straightforward.  Politicians like to conceal how much of our money they are taking and spending, but Tax Freedom Day exposes them by revealing the total amount we all pay.  By revealing the total we bring to people's awareness just how big a burden they are supporting.  And that, in turn, makes it more difficult for the big spenders to increase that burden without incurring public hostility.

My colleague, Eamonn Butler, points out that a mediaeval serf had to work only four months a year for their feudal overlord, whereas government today demands five months of our year.

Taxation undermines growth and wealth creation.  Every time the government takes a cut it makes an activity less worthwhile.  Whether that activity is trade an exchange, or earning and spending, it is made more expensive to do because of the tax, and people respond by doing less of it than they would otherwise have done.  Taxation makes the economy grow less that it otherwise would, and it means that people become less wealthy than they otherwise could.

Things could be worse, in that at least we don't have to wait until mid-July as the French do, but they could also be much better if, like our Australian and US counterparts, we stopped working for government by mid-April.  The lesson is clear: government should cut spending and cut taxation, and allow people to get on with the business of working for economic growth instead of working for government.


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