NZ 'Tax Freedom Day' next week

Tax Freedom Day is May 3 this year as far as the central government tax burden is concerned, according to Business Roundtable executive director Roger Kerr.

Mr Kerr said Tax Freedom Day represents the notional day in the year when the average New Zealander stops working for the government and starts working for themselves.

The calculation was based on central government core expenditure, which was forecast to be 33.4% of gross domestic product (GDP) in the government's December 2010 Half Year Economic and Fiscal Update.

“The average New Zealander effectively spends one third of the year working for central government,” Mr Kerr said.

Tax ‘freedom’ actually came a little bit earlier this year than in the last couple of years: Tax Freedom Day in 2009 and 2010 fell on May 4 and 8 respectively, according to revised data.

“The apparent improvement may prove to be short-lived when the government's expenditure and GDP forecasts are updated in the budget.”

However, Tax Freedom Day arrived over two weeks earlier in 2004 (April 16).

“The delay in the arrival of Tax Freedom Day since then largely reflects the rapid growth of spending during the last term of the previous government. The present government’s forecasts indicate little relief for taxpayers in the next three years.”

Mr Kerr said if local government spending was included – total government spending in New Zealand, as measured by the OECD, is projected to be 43.8% of GDP this year – Tax Freedom Day would fall on June 10, one day earlier than in 2010.

This would be almost two months after Korea (13 April), more than a month after Switzerland (2 May) and Australia (7 May), and one to two weeks after the Slovak Republic (21 May), Japan (May 29) and the United States (May 31).

Tax Freedom Day for the OECD (June 9) falls a day earlier than in New
Zealand.

Mr Kerr said a number of fast-growing Asian and other countries have levels of government spending, and hence tax burdens, that are well below the OECD average.

“While soundly based government spending on public goods and a safety net is justified, economic research suggests that beyond a certain point government spending and taxation are harmful to economic growth.

He quoted the 2025 Taskforce, which said, “Our reading of the economic literature and the historical evidence suggests that closing an income gap of the size New Zealand faces, and reversing our decades of relative decline, cannot be done with government spending at more than 40% of GDP as it is in New Zealand at present.”