TAX LEVELS in Europe vary enormously from 29.4% of GDP in the case of Romania to 48.7% of GDP in the case of Denmark. (picture: Dublin Castle)
The European Union, as a whole, is a high tax area. The sum of taxes and social security contributions in the 27 Member States amounted to 39.8% of GDP. This proportion is about 12 percentage points higher that those of the United States and Japan. The EU Tax : GDP ratio is also high among major non-European OECD Members.
Tax : GDP ratios tend to be higher among the first 15 Member States of the EU than among the more recent Eastern European Members.
New Zealand if is the only country non-European OECD Member whose Tax : GDP ratio exceeds 35%.
A stabilisation in the overall EU tax burden has evolved following increases in government expenditure and coincidental taxes for a number of years.
Tax Burden in Ireland
The following summarises the position in Ireland:
| € Billion | 2007 | 2008 | Estimated 2009 |
| National Taxes | 47.50 | 41.07 | 34.4 |
| Social Insurance | 9.43 | 9.75 | 9.78 |
| Local Government | 2.70 | 2.75 | 2.83 |
| Total Tax | €59.63 Bn | €53.57 Bn | €47.01 Bn |
| GDP | €189.75 Bn | €181.81 Bn | €172.80 Bn |
| Tax : GDP % | 31.82% | 29.44% | 27.20% |
Total public expenditure as a percent of GDP for selected countries between 1974 and 2004 is set out below for illustrative purposes:
| 1974 | 2004 | |
| Austria | 41.9% | 50.6% |
| Belgium | 45.0% | 49.3% |
| France | 39.3% | 53.4% |
| Italy | 37.9% | 48.5% |
| Japan | 24.5% | 38.2% |
| Netherlands | 47.9% | 48.6% |
| Spain | 23.1% | 38.6% |
| Sweden | 48.1% | 57.3% |
| United Kingdom | 44.8% | 43.9% |
| United States | 31.7% | 36.5% |
Overall Tax Burden in EU 2000 and 2007
| 2000 | 2007 | |
| Tax % GDP | ||
| Romania | 30.40% | 29.40% |
| Slovakia | 34.10% | 29.40% |
| Lithuania | 30.10% | 29.90% |
| Latvia | 29.50% | 30.50% |
| Ireland | 31.60% | 31.82% |
| Greece | 34.60% | 32.10% |
| Estonia | 34.20% | 33.10% |
| Bulgaria | 32.50% | 34.20% |
| Malta | 28.20% | 34.70% |
| Poland | 32.60% | 34.80% |
| United Kingdom | 36.70% | 36.30% |
| Luxembourg | 39.10% | 36.70% |
| Portugal | 34.30% | 36.80% |
| Czech Republic | 33.80% | 36.90% |
| Spain | 33.90% | 37.10% |
| Slovenia | 37.50% | 38.20% |
| Netherlands | 39.90% | 38.90% |
| Germany | 41.90% | 39.50% |
| Hungary | 38.50% | 39.80% |
| Cyprus | 30.00% | 41.60% |
| Austria | 43.20% | 42.10% |
| Finland | 47.20% | 43.00% |
| France | 44.10% | 43.30% |
| Italy | 41.80% | 43.30% |
| Belgium | 45.20% | 44.00% |
| Sweden | 51.80% | 48.30% |
| Denmark | 49.40% | 48.70% |
| Norway | 42.60% | 43.60% |
| EU-27 Average | 40.60% | 39.80% |
Source eurostat: Taxation trends in the EU
These trends are a reflection of a more extensive role for the public service since the 1970’s. A number of Member States took advantage of buoyant tax revenues at the end of the 1990’s to reduce the tax burden, through cuts in personal income tax, social security contributions and corporate taxes. While the overall tax burden in some Member States decreased after 2000, this trend was not sustainable after 2005 – due to slower economic growth between 2000 and 2004. Some States needed tax revenue to reduce their government deficit, making it difficult to cut taxes
Personal Income Tax – 2008
Ireland ranks 15th in the personal income tax rate hierarchy in the EU 27 with a 2008 maximum personal tax rate of 41%
| 2008 | |
| Top personal Income Tax rate | |
| Bulgaria | 10% |
| Czech Republic | 15% |
| Romania | 16% |
| Slovakia | 19% |
| Estonia | 21% |
| Lithuania | 24% |
| Latvia | 25% |
| Cyprus | 30% |
| Malta | 35% |
| Luxembourg | 38.95% |
| Greece | 40% |
| Poland | 40% |
| United Kingdom | 40% |
| Hungary | 40% |
| Ireland | 41% |
| Slovenia | 41% |
| Portugal | 42% |
| Spain | 43% |
| Italy | 45% |
| France | 45.78% |
| Germany | 47.48% |
| Austria | 50% |
| Finland | 50.05% |
| Netherlands | 52% |
| Belgium | 53.70% |
| Sweden | 56.44% |
| Denmark | 59% |
| Norway | 40% |
| EU-27 Average | 37.80% |
Top Rate of Statutory Corporate Tax
Corporate tax is charged on the profits (income or gains) of a company. Irish companies are taxed on their worldwide profits. Non-resident companies that trade in Ireland through a branch, or agency, are charged on the profits of that entity.
The current Irish standard rate of Corporation Tax of 12½% applies to trading income and income from vocations and professions.
A rate of 25% Corporate Tax applies to non-trading income – interest, rents, royalties, as well as income from what are defined as ‘excepted trades’ – minerals, petroleum, dealing in or developing land, other than construction activities.
A rate of 25% applies to capital gains, except for gains from the disposal of development land, the gains on which are charged at 25% and are not included in the profits chargeable to corporate tax.
Companies with a corporate tax liability of less than €200,000 are defined as small companies. There are approximately 103,000 companies liable for corporate tax in Ireland. Over 64,000 of these had no taxable income in 2007 and a further 31,000 had a trading income of less than €200,000 in 2007.
Corporate taxes will account for about 11% of all national taxes in Ireland in 2009 and there will be a potential drop of €2.6 billion in 2009 attributable to the recession and the treachery and delinquency of Irish banks and the ‘loose stools’ that posture as their top-level leadership.
| Top Rate of Corporation Tax | 2009 |
| Bulgaria | 10.0% |
| Cyprus | 10.0% |
| Ireland | 12.5% |
| Latvia | 15.0% |
| Romania | 16.0% |
| Slovakia | 19.0% |
| Poland | 19.0% |
| Czech Republic | 20.0% |
| Estonia | 21.0% |
| Lithuania | 21.0% |
| Greece | 21.0% |
| Slovenia | 21.0% |
| Hungary | 21.3% |
| Austria | 25.0% |
| Netherlands | 25.5% |
| Finland | 26.0% |
| Sweden | 26.3% |
| Portugal | 26.5% |
| United Kingdom | 28.0% |
| Luxembourg | 28.6% |
| Germany | 29.8% |
| Denmark | 29.8% |
| Spain | 30.0% |
| Italy | 31.4% |
| Belgium | 34.0% |
| France | 34.4% |
| Malta | 35.0% |
| EU-27 Average | 23.5% |
| Non-EU countries | |
| OECD-6 | 32.5% |
|
| |
| Switzerland | 21.3% |
| Norway | 28.0% |
| Australia | 30.0% |
| Canada | 34.6% |
| United States | 39.0% |
| Japan | 42.0% |
| BRIC | |
| Brazil | 34.0% |
| Russia | 20.0% |
| India | 34.0% |
| China | 25.0% |
Source eurostat: Taxation trends in the EU
The EU-27 average rate of corporate tax has declined steadily from 35.3% in 1995 to 23.5% in 2009. This trend has reduced fears of Member States competing to successively undercut each others tax rates. Enlargement had reinforced such fears as the tax rates especially in newer Member States reached levels of more than 10%-points lower than those of established Member States.
Taxes on corporate income in Europe is not only levied through corporation tax but, in some Member States through surcharges or additional taxes levied on tax bases that are similar but often not identical to traditional corporation tax. The simple corporate tax rate in the table above has been adjusted by Eurostat for comparison purposes. If several rates exist only the ‘basic’ top rate is presented. Existing surcharges and averages of local taxes are added to the standard rate. Adjustments have been made for Belgium, Germany, Estonia, France, Hungary, Italy, Lithuania, Luxembourg and Portugal.
Tax Issues in the Future
The economic impact of ageing will raise many challenges in terms of the structure of taxation. The working-age population will shrink and a fall in population growth rates is anticipated. Reforms in taxation and welfare that will increase productivity and labour supply will be desirable. Welfare will have to facilitate the long term sustainability of public finances.
The financing of welfare may rely less on income taxes and savings, as these too are expected to decline.
The impact of globalisation and tax competition could force a shift of the tax burden from geographically mobile to immobile tax bases. But such a shift is complex because the effect can take diverse forms. Globalisation may render it increasingly difficult to collect taxes from mobile bases and motivate a search for new alternatives – such as polluting activities and environmental taxes.
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