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Tuesday, May 31, 2005

Tax Freedom Day

Telegraph | Money | Why 'tax freedom day' gets later and later every year

Why 'tax freedom day' gets later and later every year
By Malcolm Moore (Filed: 30/05/2005)

Tomorrow is tax freedom day - the day taxpayers stop working for the Government and start working for themselves - and it's three days later than last year.

Until tomorrow, every penny earned by the average Briton has been needed to pay for the Chancellor's spending. Now, your money is your own. The date falls six days later than when Labour came to power in 1997.

Dr Eamonn Butler, the director of the Adam Smith Institute, which calculates when the day falls, said: "Nobody has the faintest idea how much tax they are paying."

He added that Gordon Brown had perfected Jean-Baptiste Colbert's definition of the art of taxation. "He is getting the maximum amount of feathers with the minimum of squawking because the goose does not know it is being plucked," he said.

"It is three days later than last year and five days later than the year before. It will be two days later next year and by 2020, the Government will be taking half our income in taxes," he said. The reason for the extra three days this year is mostly because of the latest National Insurance rises. Higher council taxes also had an effect.

The institute calculates the day by comparing Mr Brown's Budget predictions of national income against total taxes.

The Chancellor plans to take £450billion in taxes and excise duties this year, including VAT and council tax. However, he may not collect it if the economy does not grow as quickly as he expects.

The Treasury has been consistently incorrect on its fiscal forecasts. Last year, the Adam Smith Institute had to revise back the date of Tax Freedom day because the Revenue failed to collect as much as the Treasury wanted.

If the same thing happens again this year, the Chancellor will have to "countenance raising tax rates or cutting spending on the things which he has committed to", said Mike Warburton, a partner at Grant Thornton, the accountants.

However, Mr Warburton said Mr Brown had hit his targets by leaving tax thresholds at their old levels, while national income grows.

The Chancellor expects to raise 11pc more tax this year than last, without any changes to the tax structure. "That is 9pc higher than inflation," said Mr Warburton. "Income tax is also going to rise at 9pc above inflation," he added.

David Kilshaw, head of private client work at KPMG, said his clients were concerned at the system's complexity. "Just go back to a more simple system," he urged.

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