Have you ever wondered what is the true meaning of the nursery rhyme baa, baa black sheep.
In the Middle Ages, a hard-working peasant was required to give one third of his income to the King, “my master,” and one third to the fat nobility, “my dame,” leaving only a final third for himself, “the little boy.”
Basically two thirds of your income in the Middle Ages was lost to taxes. This may or may not surprise you but little has changed. You could not be blamed for thinking that taxation is theft.
I recall reading an article a few years ago which used an example of a man who earns £18,000 a year, who is a car owner, a smoker and drinks alcohol. Taking into account both direct and indirect taxes he paid 67 per cent tax on his income. I suspect that percentage has increased in recent years.
It has been reported that some taxpayers pay as much as 90 per cent of their income on direct and indirect taxes. Maybe it’s time to re-write baa, baa black sheep to include 4 bags!
UK tax receipts were £528.9bn in 2010/11. In 2011/12 they were estimated to be £550.6bn. Both years represent record figures. In 2016/17 they are estimated to rise to £704bn. For the last 40 years the average amount of tax as a percentage of GDP has been around 35 per cent.
How does all of the money get spent?
According to the latest estimates, out of a forecast government expenditure of £683bn in 2012/13, £130bn will be spent on health (19 per cent) and £207bn on social protection or welfare (30 per cent).
Now debates have raged on about taxes and public spending for years so you are either in favour of high taxes and a large public sector or you are not.
Personally I am not. Why? Fundamentally I believe that individuals are better at spending their own money than the government. It is all too easy to be wasteful when you are spending other people’s money. That is why the public sector on the whole is inefficiently run. Also you can not keep spending money you have not got. Eventually it leads to economic disaster.
Just look at the problems the so called Piigs countries are going through at the moment.
By the way in spite of the government austerity measures we will borrow £91bn more this year through overspending.
And all this at a time when MPs are seeking a pay rise.
As a taxpayer I feel disenfranchised by our tax system under what is in effect an elected dictatorship. I want to see lower taxes and a smaller public sector in the future but, more importantly, to have a true say in how my taxes are spent.
Tony Byrne is financial planning director at Wealth And Tax Management