The day we're finally free of the taxman

By ELLEN READ

Today is Tax Freedom Day - 147 days into the year and later than last year - when the money you earn goes to line your pockets rather than the taxman's.

Taking Leap Day (February 29) into account, it has taken an extra two days for the average earner to achieve tax freedom this year.

The main reason is the rapid increase in the Government tax take, which at 7 per cent has outstripped strong estimated GDP growth of 6 per cent.

"It is ironic that, on the day before the Budget, Tax Freedom Day highlights the fact that the Government tax take has been growing faster than the economy," said Peter Guise, managing director of accounting firm Staples Rodway.

"I am sure that most New Zealanders recognise the necessity of taxation to pay for essential services. However Tax Freedom Day this year strongly identifies that as individuals we are paying too much tax."

Tax Freedom Day is calculated by dividing aggregate national and local government tax income (the nation's tax bill) by GDP less depreciation (the nation's income) and then multiplying this by 365.

Staples Rodway has been commissioning the independent study, which makes use of internationally recognised methods, since the mid-1980s.

This year, New Zealand remains ahead of the UK (which will mark Tax Freedom Day on May 30) but lags behind the United States and Australia (both May 17).

Despite the fuss about the increase in Auckland Regional Council charges, Staples Rodway senior tax partner Roger Thompson said it would actually have taken considerably less than a collective nationwide working day to earn the extra money.

Tax Freedom Day comes earlier than the peak reached during the late 1980s, when it exceeded 160 days.

In 2002 it took 137 days to pay the nation's tax bill.

While 146 days is this year's average, many variables affect how much tax an individual pays.

For example, tobacco tax on each cigarette is 24 cents. If a person smokes 30 a day that gives $7.20 a day or $2628 a year to the Government.

This does not include GST, which would add a further $548 to the smoking habit.

Running a car also boosts the Government's coffers. Spending $40 a week on petrol nets them $740 a year in excise tax, and adding the vehicle's licence fee and GST swells the bill to $1230 a year.

"The list goes on. The alcohol we drink and the betting taxes all add to the total," Guise said. When people talk tax they tend to think of income tax and overlook the fact that for example on an income of $50,000 more than $4000 goes towards GST.

Business New Zealand calculated its own tax day, April 22. Roundtable executive director Roger Kerr said the milestone was based on a calculation of central Government core expenditure.

Your freedom day

* The date people stop working for the nation and start earning money for themselves varies, but anyone can anonymously work out their own Tax Freedom Day by logging into Tax Freedom Day calculator.

* All it takes is a few simple answers to questions about income, housing details, taxable vices (drinking, smoking and gambling), petrol, etc, and a click of the "calculate your tax button".

* For example, someone earning $60,000 who owns their own home with a mortgage and drives, smokes, drinks and gambles - presumably not all at once - would take 141 days to pay a $23,000 tax bill.

* A more restrained colleague, earning the same amount but leading a non-smoking, drinking, gambling life would take just 123 days to pay a $20,000 tax bill.