If you have ever had the feeling that you spent half your working life just to pay tax, you are probably not far wrong. What with income tax, national insurance/social security, capital gains tax, VAT, council tax, excise duties etc, a considerable amount of our hard earned income is lost in tax each year. If you are lucky enough to be retired you are still faced with tax on your savings, investments and pensions, not to mention the amount we pay in VAT each year.
The Institut Economique Molinari carries out a study each year on The Tax Burden of Typical Workers in the EU 27 and determines their “tax freedom day”. It aims to “shed light on the working individual’s role in financing their state and social security”.
Tax freedom day is the day each year when you finally stop working to pay tax to the government, and start earning money for yourself.
According to the 2012 study, Belgium has the latest tax freedom day. Taxpayers have to work up to 5th August simply to earn enough to pay taxes. France takes second place honours, with a date of 26th July. Last year it came third, but Hungary has slipped two places down the list thanks to its flat tax regime. The other countries whose dates fall as late as July are Italy, Sweden, Germany and Austria.
Malta has the earliest tax freedom in the EU, falling on just 11th April, five days earlier than last year. Cyprus comes second on the list with a date of 10th May. This is bad news for Cyprus taxpayers, since last year it arrived almost two months earlier on 13th March.
Spain’s tax freedom day fell on 23rd May, four days later than in 2011. Portugal’s shifted from 29th May to 3rd June.
Taxpayers in countries like the US and Australia fare much better than us Europeans. Their tax freedom days were 17th April and 4th April respectively.
Blevins Franks provides tax planning advice in France, Spain, Portugal, Cyprus and Malta, advising expatriates on how to use approved arrangements on how to lower the tax liabilities on their savings, investments, pensions and estate.
The Institut Economique Molinari also pointed out that across the EU as a whole, the non-working population now make up 54.7% of the population, while “tax-wise, working people must carry most of the weight – a weight that grows heavier as populations grow even older”.
So even after the current economic situation has improved, countries may still need to keep taxes higher to provide funds for their increasing pension and social welfare costs brought about by an ageing population.
Many countries across the world calculate their tax freedom day – though it tends to be private institutes and companies which do this, rather than the government. They use different methodologies, which is why you may come across different dates for the same country.
In its calculations, the Institut Economique Molinari looks at income tax, social security contributions and VAT. It calculated that the UK had a tax freedom day of 12th May.
It is interesting to compare this to the separate study on the UK tax burden carried out by the Adam Smith Institute (ASI). Its methodology includes indirect, local and stealth taxes - and under its calculations tax freedom day did not arrive until 29th May.
This means that for 149 days of the year, every penny earned by the average UK resident was taken by the government in tax.
ASI Director, Eamonn Butler, said: "Tax Freedom Day, which the Adam Smith Institute has been calculating for 25 years, is the plainest way to show what the tax burden really is. That is why the Treasury hates it. They of course want to conceal how much tax we pay, which is why they are so keen on stealth taxes."
Tax freedom day measures the money raised by the government in taxes. It does not consider the amount it borrows and spends, so ASI also calculates a “Cost of Government Day” to show the extent of the UK’s debt. The debt will have to be repaid eventually, with taxpayers picking up the bill.
The government borrows one pound for every four it raises in taxes, so the cost of government day fell on 23rd June this year. British taxpayers worked 175 days to cover the government’s spending and borrowing.
These are taxing times for taxpayers, and not just for workers as retirees are also faced with higher taxes. In many cases, however, there are still steps you can take to lighten your tax burden. While we all have to pay our share of taxes, you won’t want to pay more than you have to. Ask an international tax and wealth management advisory firm like Blevins Franks for information on legitimate tax mitigation opportunities available to you.
2nd August 2012