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Happy Australian Tax Freedom Day!

A tax is ‘a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered.’ At least that is the way the High Court defined it way back in 1938. To put it simply: A tax is something you must pay to the government; what you get in return is another matter.

In all other areas of life, when we pay someone we like to see what it is for. With taxes, it is not that easy. Your hard-earned money that goes to the government may be used to pay firefighters in the country or fix potholes in your street. It may fund the government’s broadband network or morph into your neighbour’s $900 cash bonus. Even more strangely, your money could well return to you as your own cash bonus (minus the costs of administering this redistribution).

With so little control over the use of our money, it is little wonder that no one likes paying taxes. That’s the reason governments have become very good at concealing them. Imagine if you physically had to write a ‘tax cheque’ to the Treasurer every time you refilled your car, did your shopping, or received your salary. No doubt it would keep reminding you just how much money you pay the state. But because we don’t write such cheques, most of us are blissfully unaware how much of our money goes to the government.

Last year, the average Australian paid a total of $16,401 to the tax authorities. This sounds substantial already – the equivalent of a small car. But it is also quite a lot compared to the average income – 30.8% to be precise. It means that the average taxpayer needs to work the first 112 days of the year just to pay taxes to the government. Only from 23 April was the average taxpayer actually able to hold on to his or her money.

We trust that you enjoyed your Tax Freedom Day for 2009. You are now free from the taxman (or woman) for the rest of the year. But enjoy it while you can: The government is working hard to push your Tax Freedom Day well into May next year.