Economic Policy Review ISSN 1313 - 0544

Celebrating 27 May 2009 as a Freedom from Government Day

Author: IME / 28.05.2009
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We work 5 months of the year to pay the taxes

 

27th May 2009 is the day on which we stop working for the state and start working for ourselves. Taxpayers in Bulgaria have to work almost 5 months to pay their taxes towards the state budget.  They work for themselves only 7 months.

We worked for the state least in 2002 when the Freedom from Government Day came on 18th May (see graph below).

The calculation methodology for this symbolic date is as follows: citizens produce daily 201 million levs on average, as measured by expected GDP for 2009. Therefore, in 2009, it will take exactly 147 days to produce the expected 29.55 billion in budget revenues (excluding grants and subsidies from the EU). In comparison, last year we had to work 3 days less to fill the treasury.

The Freedom from Government Day responds to the following question: What is the price that citizens have to pay for the state? This day is a clear indicator of the state's role and the amount of redistribution taking place in the economy. The later this day is, the bigger the size of the state, and consequently - the greater the tax burden for people and business.

Despite the decrease of some direct taxes, the size of the state in Bulgaria is still too large - 40.2% of the country's GDP for 2009 are expected to be taken in the form of taxes, duties and social security provisions from people and business alike, and then redistributed by the state through the budget.  This means that the government disposes of 40% of our income.

The state does not levy only direct taxes like corporate income tax, tax on the income of natural persons or garbage tax. The larger part of the revenues in the budget comes from social insurance provisions and taxes on consumption (VAT, excise taxes and tariffs).  For every good or service we buy, 20% of its value goes to the treasury in the form of VAT, and with excise commodities this percentage is even greater.

The Freedom from Government Day is celebrated in a number of countries worldwide. If we use the same methodology with developed OECD countries, we find that this day comes earliest in South Korea - on 23rd April which corresponds to economic redistribution as large as 31% of GDP. South Korea is followed by Australia - 30th April, Switzerland -1st May, Slovakia - 10th May, Japan - 12th May and Ireland - 19th May. This means that in those economies a relatively smaller part of the people's incomes is appropriated by the state.

The sooner, the better

The larger size of the state is correlated with lower economic growth because redistribution leads to lower economic efficiency of the utilized resources and often also to state financing of projects with dubious economic value and usefulness to society. Subsidizing unprofitable enterprises and activities of the public sector is de facto paid by the working people and the business that can instead choose to invest their money in profitable activities, to add value to the economy and create new jobs.

The high redistribution of income decreases people's incentives to work, create wealth, and invest, and therefore lowers economic growth and disposable incomes.

Freedom from Government Day in Bulgaria in the period 1998-2009

Source: IME

 

For more information:

Petar Ganev, economist

Adriana Mladenova, senior economist

 

Institute for Market Economics (IME)

02 / 952 62 66, 952 35 03

e-mail: mail@ime.bg

web-site: http://www.ime.bg/