JIMS - Data Analysis> Tax Freedom Day

TFD at a Glance

Tax Freedom Day is the day on which we stop working for the Government and start working for ourselves.
If the average person works from 1 Jan each year, it will be July 17 before they have earned enough to pay their taxes.
The tax burden isnt just income tax and national insurance, it includes VAT, fuel taxed, alcohol and cigarette duties, airline tax, fuel duties, car tax and many, many more.
In 2000, the government spent 227 billion. This year it plans to spend 327 billion: nearly 50% more.
If it had only grown in line with inflation since 2000, government spending would now be 267: 60 billion less than this year's proposal.
That's enough to abolish VAT and Fuel taxes entirely.

Tax Freedom Day falls on July 17: Israelis work 200 days out of the year for the government

Israelis will be able to celebrate Tax Freedom Day (TFD) on July 17th, two days later than in 2008. Once again this year Israelis will work more to finance government expenditures than their private activities. In 2009, Israelis will work 200 days for the government and only 165 days for themselves.

TFD marks the day when the average Israeli stops working for the government, and starts earning money for private consumption (or savings). It answers the question, "What price is the nation really paying for government services?"

TFD is calculated by taking the ratio of total taxes paid by the Israeli population over Israel's Net National Income (NNI), according to data published by the Central Bureau of Statistics (CBS). Total taxes include not just income tax, but VAT, local taxes, import taxes, car and fuel taxes, taxes on corporations and much more.

In 2009, taxes were altered, on the one hand income taxes were slightly lowered -- the top marginal income tax bracket decreased from 47% to 46%., and the corporate tax rate was reduced by 1 point from 27% to 26%. But on the other hand, VAT rates increased from 15.5% to 16.5%. Also, conditional on Knesset approval, the 16.5% VAT rate would be imposed on the sale of fruit and vegetables for the first time in Israeli history.

Since Tax Freedom Day is a ratio of taxes to NNI, TFD moves forward when tax collection grows faster than the growth of the economy. In 2009, Israel's NNI will decrease at a rate of at least .2% according to the Bank of Israel, partially explaining the later date for TFD. If the economy contracts by 1.5%, TFD will in fact only arrive on July 20th.

The Jerusalem Institute for Market Studies (JIMS) has calculated Israel TFD every year since 2004. JIMS also retrospectively calculated Israel TFD going back to 1990. It was found that in all 19 years since 1990, Israeli taxpayers worked more for the government than for themselves.

In 2009, we will work a total of 200 days just to pay our taxes. To put this in perspective, think about our other household expenditures and how many days we work to cover those. For example, we work 25 days for our food, 48 days to pay for housing costs, 29 days for transportation and communications and 19 days for education, culture and entertainment.

Which Taxes Are Largest?

TFD is an average for all Israelis. For some individuals, their personal TFD could be earlier (if they pay less taxes than the average) or later (if they pay more taxes than the average). TFD makes it simple for taxpayers to realize just how much of their money is transferred to the government each year. It is usually quite confusing and daunting for taxpayers to gauge their tax burden. The visible part of taxes taken in the form of income tax can be easily calculated by anyone. However, hidden taxes and fees like customs tax and purchase tax are often overlooked. In fact, individual income taxes represent only 51 days work, sales tax take another 38 days, work and national insurance contributions account for 31 days of work. Unfortunately, we also have to work 26 days for import taxes, 21 for corporate taxes, 13 days for local taxes, 11 days for health taxes and 9 days for fuel taxes.

Why do Israelis have to work so many days to finance government coffers? Israeli government spending is set to reach 328 billion NIS in 2008, which is 44,207 NIS for each individual living in Israel. For a family of four, government spending is more than 176,000 shekels a year.

It is certainly not clear that Israelis receive public services worth this amount of money; in fact 34% of the total public budget is earmarked to repay the interest and principal on loans that the government took out in the past. This has little current consumption value to Israelis.

In order to cover past governments overdraft, Israelis have to work 68 days each year. This is a reminder that when governments take out loans to finance their expenditures, the dubious short-term benefits of such an action usually lead to a substantial increase in the tax burden on future generations.

Interestingly, Israelis work much less to cover the education bill (only 24 days), welfare and social services (22 days) and health expenditures (12 days). Although Israel's high tax burden is often attributed to the security situation, Israelis only work 30 days a year to finance the defense budget.

Compared to other countries, Israels TFD falls very late in the year, more than three months after TFD in the US (April 13th ) and two months after the UK (May 14th). In fact, when comparing TFD internationally, Israel is most comparable to Sweden, Norway and France which also celebrate TFD in the middle of the summer.