Today is both a day to celebrate and one to commiserate. This year, 22 May is the date when the average South African taxpayer stops paying taxes to the government and gets to keep what is left of their hard-earned income. This means that taxpayers must work the first 142 days of the year for the state before earning a single rand for themselves and their families.

Every year for the past three decades, the Free Market Foundation (FMF) has recognised Tax Freedom Day (TFD). It is a simple, but powerful, measure of the fairness of South Africa’s tax system and the scale of the financial burden placed on ordinary South Africans.

The FMF is blessed to work with a number of highly skilled specialists across various domains, including researchers, writers, lawyers, and economists – all of whom share our commitment to the cause of freedom.

One of our senior associates is Richard J Grant, Professor of Finance and Economics at Cumberland University in Tennessee, who graciously assists us with compiling the data for TFD.

Prof Grant calculates TFD by dividing total general government revenue by South Africa’s gross domestic product (GDP) at market prices. This equates to the proportion of the year that the average income-earner works exclusively to finance a profligate government.

In 1994, TFD fell on 12 April. Since then, the total tax burden has steadily grown from 30% to 38% of GDP. As a result, TFD has shifted later every year as the state’s thirst for resources remains unquenched.

Income tax, value added tax, capital gains tax, estate duties – the list of ways for the government to take its “fair share” is long and growing. As such, South Africans have less disposable income available for investing, hiring, and other discretionary spending, resulting in an overall reduction in economic production.

Markets are the most efficient mechanism for capital allocation. Governments are terrible at it. Money in the hands of the state is often misspent, wasted, or outright stolen, distorting prices and undermining governance.

How much tax are YOU paying?

This year, our clever marketing team has come up with a creative tool to track what you as an individual taxpayer (as opposed to the median taxpayer) are forking over to the government. I would encourage you to experiment with the tool yourself but be warned: the results will shock you!

Firstly, the widget shows you how much tax you pay per month and per year based on your gross salary, which you can type into the calculator. For example, a gross salary of R30 000 per month means your estimated Pay-As-You-Earn (PAYE) payment is going to be R4 681 per month, or R56 172 per year.

This figure excludes VAT, fuel levies, unemployment insurance fund (UIF) contributions, medical credits, retirement deductions, municipal charges, and other taxes.

Assuming for the sake of simplicity that there is no inflation and that your salary remains constant at R30 000 per month, if you were to work from the ages of 18 to 65, your total PAYE contributions over the course of your working life would be R2 640 084 in today’s terms.

Of course, with the raft of other taxes we all pay, your lifetime tax contribution would be far higher.

Where does your tax money go?

The tool also enables you to estimate how long it would take you to finance various government expenditures based on your current earnings.

For example, a national government minister’s salary for a single term of five years costs an accumulative R13.95 million. Our calculator reveals that on your gross salary of R30 000 per month, it would take you 38.8 years or 14 144 days of hard labour to pay a minister’s wages.

Aren’t you glad that you’re funding the Minister of Sports, Art, and Culture? Or the Minister of Women, Youth, and Persons with Disabilities? Not exactly bang for your buck.

Don’t forget that ministers need to be driven around in fancy cars, costing approximately R1.1 million per vehicle. Each of those will take you 3.1 years or 1 115 days of solid work to pay off.

There’s nothing that ministers and Members of Parliament love more than attending the annual State of the Nation speech (costing a “modest” R7 million). To afford this boondoggle, you would have to work for the state for 19.4 years (or 7 097 days).

Broken contract

In our press release earlier today, the FMF noted its long track record of advocacy for structural tax reform as part of its Liberty First policy agenda. We repeated our calls for income tax cuts, broadening of the tax base, a reduction in government expenditure and greater fiscal discipline.

These recommendations are likely to fall on deaf ears in government since it has a strong interest in keeping the funds flowing. It is no accident that the most efficient government department by a country mile is the South African Revenue Service (SARS).

We are told that this is a good thing, but I’m not so sure.

I have heard many a horror story from tax practitioners who report capricious – and sometimes outright hostile – treatment from SARS officials who are known to unreasonably delay tax refunds, arbitrarily threaten fines, or simply drown otherwise compliant taxpayers in paperwork.

Let’s negotiate

There is a deeper point worth making here regarding the so-called “social contract”, which is not so much a contract as it is a shakedown of productive citizens by an extractive political elite.

Tax specialist and University of Pretoria economist, Dr Sansia Blackmore, has argued for a reintroduction of the concept of “tax bargaining” back into public discourse. Her insight is that tax compliance is the product of a negotiation between both taxpayers and the government.

This is a relationship founded on mutual respect, not simply coercion, Blackmore argues. Paradoxically, when taxpayers are treated with the respect they deserve, they tend to be more willing to finance government’s activities. Even a crazy libertarian like me can see the value of this approach.

South Africa’s narrow tax base, combined with its highly punitive approach to revenue collection, is a toxic mix. Given this unsustainable relationship, we should revisit the idea of tax bargaining with the seriousness it deserves.

Ansara is CEO of the Free Market Foundation.