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Have you stocked up on champagne for the weekend?
You might want to have a glass tomorrow to celebrate Tax Freedom Day.
Because, according to the Adam Smith Institute, that’s the day that Gordon Brown finally takes his hand out of your pocket and you start working for yourself rather than the Government.
Of course, you might not feel like celebrating at all. After all, the idea that you have to work more than five months a year before you get to keep any of your hard-earned wage packet is pretty depressing.
And the bad news is, it’s getting worse…
Tax Freedom Day (TFD) is worked out each year by Gabriel Stein, a director of Lombard Street Research, for the Adam Smith Institute.
He calculates the number of days a year the average earner has to work to pay ‘all direct and indirect taxes and National Insurance Contributions’. TFD is the day that you stop working for the Government, and start working for yourself.
Basically, it’s an elegant way of demonstrating whether the tax burden is going down, or – as seems far more likely – is going up.
The UK still compares favourably to the Eurozone economies in terms of taxation. The typical European has to work for about six months before they’ve paid off the taxman.
But as the Adam Smith Institute points out: ‘With more and more EU and OECD countries, particularly in Central and Eastern Europe, adopting flat taxes, the advantage that Britain may have over the high-tax countries of ‘Old Europe’ is likely to be eclipsed by the radical low-tax high-growth performance of ‘new Europe’.’
And while Europe might be heading in the right direction, the UK’s Tax Freedom Day keeps getting pushed back further and further.
June 3rd is the latest it’s arrived since 1988 – and recent trends aren’t promising. In 2003, it fell on May 25th, then moved to May 27th in 2004. It jumped three days forward to May 31st last year, and has jumped another three days this year.
The omens aren’t good looking forward either. TFD is based on the amount of money the Government takes in from taxpayers. But the Government also borrows money on top of that, so the amount it actually spends is a very different number.
If TFD was adjusted to account for Government spending, rather than just the tax take, it would fall on June 15th – the latest since 1995.
Of course, borrowed money has to be repaid. Unfortunately for us, when the Government borrows, we’re the ones who have to pay it back – so today’s over-spend translates into tomorrow’s tax hikes.
So it seems likely that next year’s Tax Freedom Day will be even further into June.
Suddenly the idea of celebrating doesn’t seem so appealing…
The FTSE 100 closed higher, rising 27 points to 5,749. The main riser was hedge fund company Man Group, up 3% to £24.20 as it said funds under management had risen 16% to $49.9bn in the year to March. But the mining sector was lower again, with Xstrata the main faller, down 3% to £20.57. For a full market report, see: London market close
Over in continental Europe, the Paris Cac 40 gained 17 points to 4,947, while the German Dax rose 14 to close at 5,707.
Stock markets also made gains across the Atlantic, as revised data on labour costs showed that inflationary pressures in the fourth quarter were much lower than had been expected. There was also further evidence of the housing market cooling – pending home sales fell in April for the third month in a row. The Dow Jones Industrial Average gained 91 points to 11,260, while the S&P 500 rose 15 to 1,285. Meanwhile, the tech-heavy Nasdaq climbed 40 to 2,219.
In Asian trading hours, the Nikkei 225 rallied, as fears over US interest rates eased a little in the wake of Thursday’s weak US economic data. The index closed 285 points higher, at 15,789.
This morning, oil headed higher in New York, trading at around $70.70 a barrel. Brent crude was also rising, trading at around $68.50.
Meanwhile, spot gold was lower again, sliding to around $620.90 an ounce before rallying to trade at around $623.50, while silver slid to around $11.83.
And the big news this morning is that New York Stock Exchange has agreed to buy Europe’s Euronext exchange for nearly $10bn, creating the first transatlantic exchange.
And our two recommended articles for today…
The biggest risk facing investors in China and India
– Financial commentators often ask which economy holds the best long-term prospects for investors – China or India? But it’s not that simple, says Morgan Stanley’s Stephen Roach. Each country is a mirror-image of the other – China wants and needs to strengthen its services sector, while India believes a stronger manufacturing sector is the solution to rural poverty. But what will be left for the developed world if the Asian powerhouses succeed? To find out, and to learn about the single biggest threat facing investors in China and India, click here: The biggest risk facing investors in China and India
How to invest like Warren Buffett
– Every year, thousands of people converge on Omaha to hear the wisdom of investment legend Warren Buffett. The Daily Reckoning’s Chris Mayer made the pilgrimage for the first time – and he wasn’t disappointed. To find out which sectors Mr Buffett thinks are overvalued and to learn more about his investment strategy, click here: How to invest like Warren Buffett