Israelis celebrate Tax Freedom Day on July 9th this year:
Once again Israelis work more for the Government than for themselves
Tax Freedom Day marks the day when on average Israelis stop working for the government,
and start earning money for private consumption (or savings).
This year Israelis will only be able to celebrate TFD on July 9, 11 days later than in 2011. In 2012, Israelis will work 192 days for the
government and 174 days for themselves (2012 is a leap year).
In 2012, we will work a total of 192 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, 53 days to pay for housing costs,
and 31 days for transportation and communications.
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) and the Ministry of Finance.
Total taxes include not just income tax, but VAT, local taxes, import taxes, car and fuel taxes, taxes on
corporations and much more.
Since Tax Freedom Day is a ratio of taxes to NNI, TFD moves backwards when tax collection grows
slower than the growth of the economy. In 2012, Israel's NNI is expected to increase by 3.2% but tax collection is expected
to increase at a higher rate of close to 10%.
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 from 1990 to 2009,
Israeli taxpayers worked more for the government than for themselves. In 2010 and 2011, Israelis were finally enjoying working
more for themselves than for the government.
This year, this improvement has once again disappeared.
Israel's tax burden is very high compared to other developed economies. For example, in 2012,
the US celebrated TFD on April 17th, Canada on June 11, and the UK on May 29th. Among the countries celebrating
TFD later than Israel are Germany,
France, Belgium and Hungary.
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 37 days work compared to sales taxes that represent 42 days of work.
National Insurance contributions account for 33 days and unfortunately, we also have to work 25 days for import taxes,
17 for corporate taxes, 15 days for local taxes,
12 days for health taxes and 11 days for fuel taxes.
Who is Paying Most Taxes?
The top income decile pays 64% of all direct taxes (based on income) and 16.4% of indirect taxes
(taxes based on consumption). The top 20% pays in fact 56% of all taxes (82% of direct tax and 31% of indirect tax),
while the bottom 20% pays only 7% (all in indirect tax).
What Are We Buying for our Taxes?
Why do Israelis have to work so many days to finance government coffers? Israeli government spending is set to
reach 366 billion NIS in 2012, which is almost 47,000 NIS for each individual living in Israel. For a family of four,
government spending is more than 187,000 shekels a year.
It is certainly not clear that Israelis receive public services worth this amount of money; in fact 35% 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 a 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 23 days),
welfare and social services (25 days) and health expenditures (11 days).
Although Israel's high tax burden is often attributed to the security situation,
Israelis only worked 27 days in 2012 to finance the defense budget.