Tax Freedom Day

Before we get to last weekend’s celebrations, some big falls in the US markets overnight.

The Dow Jones closed down 1.78%, while the NASDAQ shed a hefty 2.57%. Apparently investors are getting a bit jittery about Captain Trump’s ability to steer the good ship USA.

You can expect further losses in the Aussie market today as well. That follows on a 1.1% loss for the ASX 200 yesterday. This was in part impacted by heavy selling in the banks.

Is this the beginning of the broader 10% correction Jason Stevenson has been cautioning about? Or could it be more ominous? Perhaps we’re seeing the first cracks in the dam before global markets lose not just 10%, but 50–60%…or more.

Either way, if you haven’t yet picked up a copy of Vern Gowdie’s new book, The End of Australia, I recommend you do so now. It could mean the difference between a comfortable self-funded retirement and trying to make ends meet off a meagre government pension. Find out how to obtain your copy here.

Now back to last Saturday’s revelries.

Free at last!
We hope you took a bit of time out of your Saturday last weekend to celebrate. No, not to mark Mother’s Day Eve. As far as we know that’s not an official holiday yet. Though most mums I know would happily extend Mother’s Day for the entire weekend.

So why the Saturday celebration? Tax Freedom Day, of course.

This marks the day on which Australians, as a nation, are finally free from the government’s relentless cash grab. Meaning for the rest of the year you’re actually…at long last…working for yourself.

According to calculations from my colleague Terence Duffy over at Cycles, Trends and Forecasts, this year Tax Freedom Day fell on 13 May. A bit of quick maths tells us that’s 133 days working for the government.

That’s four more days than in 2016, when the tax yoke was removed from Australians’ necks on 9 May.

As you can see on the graph below, the day where your money becomes, well, your money varies from year to year.


Source: Cycles, Trends and Forecasts
[Click to enlarge]

(Note: Tax Freedom Day is calculated by comparing Australia’s net national income to the total tax revenue collected at all levels of government, including indirect taxes.)

You’ve also likely noted the steady climb from 1964–1988. In just 24 years, Aussies went from owing 80 days of work each year to 131 days. Fortunately there are only so many days in the year the government can pilfer. So we’ve seen this number hover between 120 days and 137 days ever since.

Now, the following chart may surprise you. It shows the average number of days you’d have spent working for the government since 1960. The red bar is Labor. The blue bar is Liberal.

Labor Liberal

Source: Cycles, Trends and Forecasts
[Click to enlarge]

Most people I talked to — in a very unscientific survey — expected a heavier tax burden from Labor governments. The truth is they’re almost identical to the Liberals. You would have spent 116 days working for Labor and 115 for the Libs. (Although the graph distorts the difference, as it starts the count at 110 days.)

You see, it really doesn’t matter who you vote for. The government is the government. They’re really good at taking your money…and really bad at spending it.

How bad? Well, even after chipping in 133 days’ worth of our hard earned cash, Treasurer Scott Morrison forecasts a deficit of $29.4 billion in 2017/18.

Of course, Scott assures us that Australia will be back to surplus by 2020/2021. By $7.4 billion, to be precise. Even if that happens (subliminal voice: it won’t!), don’t mistake the deficit for the debt.

$7.4 billion in annual savings sounds like a nice chunk of change. But the government also just raised Australia’s gross debt ceiling to $600 billion. And Shadow Treasurer Chris Bowen says this could hit $725 billion before we see any decline. That’s like having a $725,000 car loan to pay off…with $7,400 per year.

I’ll let you do the maths.

The elephant in the room here is that even this relatively small surplus is out of reach without serious cuts to spending. And you know how good governments are at reining in spending.

That’s because the surplus figures rely on some highly-optimistic assumptions. Among other things, Scott is betting on Aussie wages growing 3.75% a year by 2021.

Following the dismal wage growth figures released this week, that prediction is looking ever more bubbly.

Business Insider reports:

For the first time in several years, Australian wages are failing to keep up with inflation.

According to latest Wage Price Index released by the Australian Bureau of Statistics earlier today [Wednesday], wages grew by 0.5% during the March quarter, leaving the year-on-year increase at 1.9%… with consumer price inflation currently running at 2.1%, it means that real wage growth went backwards for the first time since the June quarter 2014…

However, without rounding, private sector wages grew by just 1.79%, the lowest level on record dating back to when the survey first began in 1997.

And from The Age:

According to the Bureau’s December figures, the cruder measure of average weekly earnings shows the growth in male wages is at its lowest level since World War Two.

Wages growing by less than inflation. Spending locked in. Surpluses promised. Where does this leave us?

More than likely celebrating Tax Freedom Day later and later each year.


Bernd Struben,
For Markets & Money

Bernd Struben is a contribution Editor of Markets & Money. He holds a degree in Economics and is a published novelist. Bernd’s career spans multiple countries on four continents. With his diverse background, he brings unique business insight and a libertarian twist to his columns and analysis in Markets & Money.

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