Tax Freedom Day 2009 falls on 14 May

For Release: SATURDAY 2 MAY 00:01

But you'll have to work until June 25 to pay off Brown's borrowing binge.

Tax Freedom Day, the day in the year when the average Briton has earned enough to pay his annual tax bill, will fall on 14 May this year, according to independent think-tank the Adam Smith Institute. This means that for 135 days of the year, every penny earned by the average UK resident will have been taken to support government expenditures.

This is the earliest Tax Freedom Day since 1973 – on the face of it, good news for taxpayers. But there is a downside: the traditional Tax Freedom Day measure only reflects the money actually raised by the government in taxes, not the full amount it spends. If the government deficit is factored in, Tax Freedom Day does not come until 25 June (the worst figure since 1984).

This gap between Tax Freedom Day based on actual revenues and Tax Freedom Day based on government spending is now the widest it has been since the early 1970s – and possibly since World War II.

According to Gabriel Stein, Chief Economist at Lombard Street Research who calculates Tax Freedom Day every year, the figures indicate a bleak future for British taxpayers:

"Running up deficits can be described as a form of deferred taxation. The effect will be that when the economy recovers – as it will eventually do – the UK tax burden is likely to rise much faster than would otherwise have been the case and Tax Freedom Day is likely to creep later and later in the year."

 Moreover, the reason that Tax Freedom Day will arrive so early in 2009 is not so much that the tax burden has been dramatically reduced – although the temporary reduction in VAT is certainly significant – as it is that tax revenues have collapsed due to the sharp downturn in the economy. Dr Eamonn Butler, the director of the Adam Smith Institute, commented: 

"It's nice to see Tax Freedom Day come early, but our research doesn't leave me optimistic. Under Gordon Brown's stewardship of the economy, the government's annual deficit went from near-balance in 1998 to more than 3% in 2007. And that was when the UK economy was growing strongly. Now the Chancellor is forecasting a 13.3% deficit. Young people have the right to feel very angry, because they'll be carrying the burden of these mistakes for years to come."

 Notes for editors:

  1. The original Tax Freedom Day for 2008 was estimated at 2 June, based on figures contained in the 2008 Budget. Yet a year later we find that the day was 22 May – a difference of 11 days. This substantial change in the forecast and estimated Tax Freedom Day is due to actual economic growth and tax revenues being several percentage away from the government's forecasts.
  2. Tax Freedom Day shows the total tax paid each year by a taxpayer on average income, including indirect taxes, local taxes and National Insurance contributions, as a percentage of that individual's total income. It is calculated by comparing general government tax revenue with the Net National Income (NNI). The total of all government tax revenue – direct and indirect taxes, local taxes and National Insurance contributions – is calculated as a percentage of NNI at market prices. The result is then converted to days of the year, starting from 1 January.
  3. Tax Freedom Day is calculated for the Adam Smith Institute by Gabriel Stein, a Swedish economist who has lived in the UK since 1990. In 1981 he worked in the Israeli Ministry of Finance. From 1982 to 1991 he ran his own economics and public affairs consultancy, Stein Brothers. He is currently a director of Lombard Street Research Ltd.
  4. Tax Freedom Day web-site: http://www.adamsmith.org/tax-freedom-day/

 

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