An annual study determines the “tax liberation day” for individuals working in each EU state. It measures and compares tax burdens to show how much of a year’s work is devoted to paying taxes.
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, 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. Having paid so much tax all your life, you will not want to pay any more tax now than you absolutely have to – tax planning is an important part of protecting your wealth in retirement.
An annual study, The Tax Burden of Typical Workers in the EU 28, determines the “tax liberation day” for individuals working in each EU State. Carried out by the Institut Economique Molinari, it measures and compares tax burdens across the EU to show how much of a year’s work is devoted to paying taxes.
Levies on the average worker remain high thanks to austerity measures. There was a slight dip this year though, with the average real tax rate of 45.19% compared to 45.27% in 2014.
The report highlights that over half the EU population (56.2%) are not in the labour force. This means that working people carry most of the tax weight. As Europe’s population ages, the state’s pension and health care expenditure increases, but there are fewer people in employment to pay for these costs.
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.
Belgium continues to have the latest day, falling this year on 6th August, with France coming in second place with 29th July.
Cyprus has the earliest tax freedom day with 31st March, followed by Malta with 19th April.
According to the study, Spain’s tax freedom day fell on 7th June. This means that for 153 days of the year, every cent earned by the average Spanish employee was taken by the government in tax.
This is an improvement on last year’s 12th June, but still a long way off the 16th May tax freedom day we had in 2011.
The average gross average salary in Spain is €33,809, but after taxes people are only left with €19,215 to spend on themselves.
Although income tax rates have fallen a little this year, as part of the 2016 budget proposals wealth tax will extended another year to 2016. It was meant to disappear in 2016 but is still in place.
Tax freedom day is calculated by many countries across the world, though it tends to be private institutes which do this, rather than the government. They use different methodologies, so you can 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 9th May this year.
In the UK, the Adam Smith Institute (ASI) carries out a separate study, and its methodology includes indirect, local and stealth taxes. It calculates that tax freedom day arrived on 31st May.
ASI Director, Eamonn Butler, commented: “The Treasury hates Tax Freedom Day, because they don’t want us to know how much tax we really pay. They prefer to conceal the tax burden through stealth taxes and indirect taxes that we don’t even realise we’re paying.”
The 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. This year, it falls on 29th June.
These remain taxing times for taxpayers, and not just for workers as retirees are also faced with higher taxes. And of course there is no average person and higher earners will generally have a later tax freedom day. In many cases, however, there are steps you can take to lighten your tax burden on your capital investments and pensions. While we all have to pay our share of taxes, do not risk paying more than you have to. Seek specialist advice on the compliant tax mitigation opportunities available to you in Spain and UK.
Click here to contact us
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.