Are you free from tax?
Good news…..Today, 14th May 2009, is Tax Freedom Day. Very recently, Gabriel Stein, Chief Economist at Lombard Street Research calculated this for the Adam Smith Institute.
The Adam Smith Institute is the UK’s leading innovator of free-market economic and social policies. It is politically independent and designed to be a non-profit making organisation.
Tax Freedom Day is the day on which we stop working for the Chancellor and start working for ourselves, assuming we pay all of our annual tax with all of our income from 1st January.
The tax burden isn’t just income tax and national insurance, it includes VAT, fuel tax, alcohol and cigarette duties, airline tax, fuel duties, car tax and many, many more.
The government’s preference for stealth taxes in the past few years has meant that it’s becoming harder for us to understand how much we are paying, and for what. The importance of Tax Freedom Day is that it detects stealth taxes.
Tax Freedom Day is earlier this year than it has been in any year since 1973.
On the face of it, this is good news.
We should all celebrate….or should we? Keep reading!
There is something else to consider: Tax Freedom Day only takes into account the amount of money the government raises in taxes, not the full amount the government actually spends.
If this is taken into account, Tax Freedom Day falls on 25th June. This would in fact be the latest date for Tax Freedom Day since 1984.
Perhaps the party is now beginning to falter a little.
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, 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, 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.”
The best solution to this is to ensure that you do as much as possible to reduce your tax burden by using all allowances and tax-breaks.
Many have ensured that their personal Tax Freedom Day is much earlier than today by seeking advice from their Financial Planner.
Millions of pounds in unnecessary tax have been saved for individuals.
I urge you to do this too.