Israelis celebrate Tax Freedom Day on June 29th this year:

7 days later than in 2010

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 June 29, 7 days later than in 2010. In 2011, Israelis will work 182 days for the government and 183 days for themselves.

In 2011, we will work a total of 182 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 28 days for our food, 52 days to pay for housing costs, and 33 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 2011, Israel's NNI is expected to increase by 5% but tax collection increased at a higher rate.

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. Since last year, Israelis can finally enjoy working more for themselves than for the government, although this year they will only work an extra day for themselves.

Israel's tax burden is still high compared to other developed economies. For example, in 2011, the US celebrated TFD on April 12th, Canada on June 6, and the UK on May 30th . Among the countries celebrating TFD in June are Italy (June 18th), Belgium (June 10th) and Croatia (June 10th). Israelis will work less for their government than the Germans (July 8th), the French (July 16th) and the Swedes and Norwegians (July 29th).

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 38 days work, less than sales taxes that represent 40 days of work. National Insurance contributions account for 31 days and unfortunately, we also have to work 22 days for import taxes, 15 for corporate taxes, 15 days for local taxes, 11 days for health taxes and 10 days for fuel taxes.

Why do Israelis have to work so many days to finance government coffers? Israeli government spending is set to reach 348 billion NIS in 2011, which is 45,041 NIS for each individual living in Israel. For a family of four, government spending is more than 180,000 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 64 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 22 days), welfare and social services (26 days) and health expenditures (10 days). Although Israel's high tax burden is often attributed to the security situation, Israelis only worked 25 days in 2011 to finance the defense budget.