Eurostat Releases New Taxation Report

by Ulrika Lomas, for LawAndTax-News.com, Brussels

18 May 2006

In its latest publication, entitled ‘Structures of the taxation systems in the European Union: 1995-2004', Eurostat has revealed that there was a small decline in overall taxation to 39.3% of GDP in 2004, but that the tax burden on labour remained broadly stable

Eurostat, which is the Statistical Office of the European Communities and the Commission’s Directorate-General for Taxation and Customs Union has compiled tax indicators in a harmonised framework based on the European System of Accounts, allowing accurate comparison of the tax systems and tax policies between EU Member States.

According to the report, in 2004, the overall tax ratio (i.e. the total amount of taxes and social security contributions) in the EU25 stood at 39.3% of GDP. Compared to the year before, the weighted average declined by 0.2 percentage points, restarting the gradual downward trend that had been apparent since the turn of the century, but which had been interrupted in 2003. The decline is due essentially to developments in the euro area, notably to marked declines in Germany and Italy.

It went on to reveal that EU tax levels remain generally high in comparison with the rest of the world; the EU25 tax ratio exceeds those of the USA and of Japan by some 14 percentage points.

However, the tax burden varies significantly between Member States, ranging in 2004 from 28.4% in Lithuania and 28.6% in Latvia to 50.5% in Sweden and 48.8% in Denmark. Generally, the new Member States tend to have lower tax ratios; however Ireland (30.2%), Portugal (34.5%) and Spain (34.6%) also display notably low overall tax ratios.

In the past decade significant changes in tax ratios have taken place in several Member States. The largest falls have been for Slovakia, where the overall tax burden dropped from 40.5% in 1995 to 30.3% in 2004, Poland (from 38.5% to 32.9%) and Estonia (from 37.9% to 32.6%). The highest increases were noted for Malta (from 27.6% to 35.1%) and Cyprus (from 26.9% to 34.1%).

Overall, given also that in many Member States tax ratios have shown little change, EU25 tax levels are nearly the same as they were in 1995 (39.7%); nevertheless, the ratio has shown a non-negligible decrease from a peak of 41.2% in 1999.

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