Tax Freedom Day is again the 29th of May!

According to the budget for 2008, this year the Tax Freedom Day will be on the 29th of May! This is the day when the people will stop working for the government and will start working for them. If the taxpayers were forced to give all their earnings to the government, until the revenues forecasted for the entire year to the budget are collected, than only after that date they could keep their income for themselves, than 29th of May would have been that date. 

During 2007, according to calculations by the Institute for Market Economics, the Tax Freedom Day was also the 29th of May. Thus, although the flat tax was introduced on the income of physical persons – 10% and the reduced social security payments by three percentage points since 1st of October 2007, the people will not work less for the government this year. Only the fact that 2008 is a leap year  saves us from celebrating the day of freedom one day later than last year – 30th of May.

The reason is that the redistribution foreseen by the budget increases, rather than to be reduced. These calculations do not include the expected over fulfillment of the state revenues, which we have witnessed in the last five consecutive years.  This means that the government is taking from the taxpayer more than is required to cover for the planed expenses.  Which anyway are too large. The funds collected are spent for the administration, subsidies to loss making activities such as the rail road transportation, providing state subsidies (for example to the agricultural producers), purchase of equipment for the military, paying pensions, implementation of social policies, subsidies to cultural events. 

The tax burden measured as a percentage of the expected tax revenue from GNP is increasing in 2008.  This means that there is a redistribution of the tax rates on different tax bases and sources of income, but as a whole the tax burden on the people is not reduced. According to the calculations, the government treasury will collect additional 301 million from increasing the excise tax on fuel, cigarettes and electricity and will lose 180 million from the introduction of the flat tax. As you can see the government is a net winner, which is different from the people which are the actual losers.   

How could we celebrate the day of freedom earlier?

We believe that the Bulgarian economy would develop much faster if it follows the principals of freedom, entrepreneurship, and personal initiative, free and competitive market.  These ideas are expressed by reducing the government intervention in the economy. The specific proposals by the IME include:

  • Reduction of the largest tax at present – the social and health payments, equal to 33.5% of the income of the employed (on labor contracts, 3rd category labor).
  • Introduction of real financial decentralization, where the mayors will have the right not only to increase, but also to reduce the local taxes.
  • Introduction of zero tax on reinvested profits, eliminating the tax on dividends and reducing the tax for one person merchants from 15% to 10%.

All these proposals must be combined with reductions of the expense side of the budget through privatization of state companies, optimization of the administration, reforms in the area of healthcare and social services – moving to a capital pension system and breaking of the monopoly of the health fund, introduction of private health funds and allowing for personal negotiations in the system. This will allow reducing the share of personal income for social security in personal accounts, while the expected pensions will be higher and the healthcare with better quality.

If all these steps are executed this will allow celebrating the day of freedom much earlier – possibly in April. 

The day of freedom from government intervention in Bulgaria over the years

  

Source: IME


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