Tax Freedom Day, or the day in the year when the average Briton has earned enough to pay his annual tax bill, will fall on May 14 this year, according to independent think-tank the Adam Smith Institute.
The ASI has calculated that this is the earliest Tax Freedom Day since 1973 which, on the face of it, is good news for taxpayers. This is 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).
"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", Dr. Eamonn Butler, director of the Adam Smith Institute, commented.
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. 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 January 1.
By way of comparison, Tax Freedom Day for US taxpayers arrived on April 14 this year - eight days earlier than it fell last year - according to the Tax Foundation, a non-partisan tax policy think tank. The 2009 Tax Freedom Day, as calculated by the Tax Foundation in Washington, fell a full two weeks earlier this year than it did in 2007, the foundation said in a news release. It was eight days earlier than Tax Freedom Day in 2008.
The foundation attributed the advance to two factors: the recession, which reduced tax collections faster than it reduced income; and the stimulus package, which included a large temporary tax cuts for 2009 and 2010.
If the $1.5 trillion budget deficit were factored in, the foundation said Tax Freedom Day wouldn't be observed until May 29.
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