Taxation Trends in the EU

Eurostat have published a news release with some summary tables of taxation trends in the EU.  The data are taken from the 2013 Statistical Book on the same topic.  The section on Ireland in the book opens with the following summary.

At 28.9 % in 2011, the total tax-to-GDP ratio in Ireland is the sixth lowest in the Union and the second lowest in the euro area. In recent years this ratio gradually decreased from a 2006 high of 32.1 %, but has increased again in 2011, apparently on foot of budgetary measures aimed at raising tax receipts.

The taxation structure is characterised by a strong reliance on taxes rather than social contributions. Direct and indirect taxation make up 43.4 % and 39.4 % of the total revenue in 2011 respectively, whereas the social contributions raise only 17.2 % of total tax revenue. The share of social contributions is the second lowest in the EU. The structure of taxation differs considerably from the typical structure of the EU-27, where each item contributes roughly a third of the total. As in the majority of Member States, the largest share of indirect taxes is constituted by VAT receipts, which provide 54.1 % of total indirect taxes (53.3 % for the EU-27). The structure of direct taxation is similar to that found in the EU-27. The shares of personal income taxes and corporate income taxes are in line with the EU-27 average and represent 9.2 % and 2.4 % of GDP. Social contributions represent a meagre 5 % of GDP (second lowest in the Union after Denmark), compared to an EU-27 average of 12.7 %. Employers’ and employees’ contributions are at 3.5 % and 1.3 % of GDP, respectively.

Ireland is one of the most fiscally centralised countries in Europe; local government has only low revenues (3.5 % of tax revenues). The social security fund receives just 16.4 % of tax revenues (EU-27 37.3%), while the vast majority (79.2 %) of tax revenue accrues to central government. This ratio is exceeded only by Malta and the UK.

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24 thoughts on “Taxation Trends in the EU”

  1. “The share of social contributions is the second lowest in the EU.”

    The Social Insurance Fund, its rates of contributions and arbitrary nature of both benefits and rates of benefits has always perplexed me.

    A self employed professional eg, lawyer, doctor, auditor will pay a PRSI rate of 5%, up from 3% a few years ago.

    An employed person will pay 4% and his or her employer will pay 10.75%, a total of 14.75%, as compared with the self employed person.
    The principal benefit for both, by a long shot in my estimation, is the contributory pension scheme.

    The Troika, from recent reports, want to eliminate the small differential that exists between contributory and non contributory benefits.

    A number of years ago, the mid 1990s if I recall. people with as little as 10 years contributions were awarded a contributory pension benefit, a decision that was of significant benefit to many State employees who were already in receipt of a State pension, but who could retire early and build up sufficient contributions to get a second pension. The decision also benefited farmers significantly.

    Yet, the benefits can be reduced at the drop a hat. The insured unemployment used to be 24 months back in 1980s. It was reduced over the years and in the last budget was reduced from 12 months to 9 months.

    Landlord rental income was PRSI free and will be until January 2014, a nice little earner for the landlord class, that has probably taken the intervention of the Troika to rumble.

  2. The struggling economies of the EU are among the countries that have low levels of taxation when revenues are measured as a ratio of GDP. Denmark, Sweden and Finland – – the best-run small economies in Europe – – all have ratios in the 40s, compared with Spain at 31.4%; Greece at 32.4% and Portugal at 33.2%. Denmark’s rate is 47.7%. Ireland’s GDP ratio is 28.9%. As a ratio of gross national income, mainly excluding the profits of the foreign multinational sector, the ratio would be 35.8% comparable with the UK’s rate of 36.1%.

    Ireland has low taxes on companies — lower than 1% for some – – while employer social security costs are low. While its deliberate policy to keep employer social security costs low and therefore half of Irish private sector workers have no occupational pension while politicians and senior civil servants, feathered their own nests well.

    Old news of course and not likely to create a stir unless the Germans can be blamed!!

  3. A bit off topic but interesting to see the new Italian PM reversing tax increases
    (vat) and stopping the dreaded property tax due in June…is Austerity in tatters innitaly or will Angela knock some sense into him when he goes to dinner in Berlin tomorrow night?
    Will Enda now drop our property tax as well? Probably not… as Austerity is working so well..another retail chain goes bust today.
    From the guardian..
    “Italy’s new premier says his broad coalition will work to heal the nation’s finances while encouraging economic growth.

    Enrico Letta is laying out his vision Monday of a pro-European Italy focused on spurring investments and job creation. The center-left leader, who has brought media mogul Silvio Berlusconi’s conservatives together in a tense coalition, is seeking support as he faces for confidence votes in Parliament.

    Appeasing Berlusconi, Letta said Italians won’t have to pay an unpopular property tax this June while a system fairer to the less affluent is devised”

    For all Austerians…
    http://www.nytimes.com/2013/04/29/opinion/krugman-the-story-of-our-time.html?hp

    Quote..
    “Is the story really that simple, and would it really be that easy to end the scourge of unemployment? Yes — but powerful people don’t want to believe it. Some of them have a visceral sense that suffering is good, that we must pay a price for past sins (even if the sinners then and the sufferers now are very different groups of people). Some of them see the crisis as an opportunity to dismantle the social safety net. And just about everyone in the policy elite takes cues from a wealthy minority that isn’t actually feeling much pain.

    What has happened now, however, is that the drive for austerity has lost its intellectual fig leaf, and stands exposed as the expression of prejudice, opportunism and class interest it always was. And maybe, just maybe, that sudden exposure will give us a chance to start doing something about the depression we’re in.”

  4. @Fiatluxjnr

    “Will Enda now drop our property tax as well?”

    In reply, also a bit off topic….. I had an interesting situation at the weekend back on home soil for a couple of days to watch the Leinster v Biarritz game (and I have tickets for that Amlin cup final yippee).

    I live in a road of identical houses….. if you tried to sell one of them today it might, if you are really lucky, sell for a value about 2 bands below what the revenue letter says it ‘should’ be (‘should be’ is about 40% less than peak prices they were selling for a few years back).

    Anyway, speaking to my neighbours at the weekend about coming up with a common, agreed band for our returns that is below the official figure and reflects reality …… united we stand, divided we fall and all that…..

    The two people currently trying to sell their houses (and neither have even sparked the interest of a single viewer yet at the price they are up for) have banjaxed the rest of us by saying they won’t agree to send in a return for anything lower than the ‘should be’ value band that was in the letter. They are clearly under some delusion that if they show prospective buyers the property tax they are paying then it must make their house worth that value (shoorly, hic?).

    Meanwhile, if the rest of us now try to send in a lower figure, the revenue are going to give us short shrift because these other two have agreed with them.

    What’s worse is we know that our lovely politicians, once they have the system up and running, will return to this well of easy money again and again over the next few years until we are paying French/UK rates of property tax (e.g. I pay 4 figures on a relatively small apartment in France and over 400 a year in water rates for a place I spend 2 months a year in).

    This situation is probably going to leave the rest of us non-sellers paying an awful lot more in a few years time than if we had acted in common interest to ‘baseline’ a lower band now.

    Should I shoot the two sellers before they send in their return?

    Please advise.

  5. PR guy,
    It looks like yours will be the only road in South Dublin who inflates their house prices for tax purposes. Do you live in Dundrum by any chance?

  6. @Colm McCarthy

    Wages are presumably directly related to output. Hands up for a tax on wages!

  7. @ PR Guy

    Revenue say they won’t ‘come after you’ if you make an ‘honest attempt’ to value your home.

    As their values are BS, ‘Honest attempt’ simply means going on the property rigister, finding the average price on your street, for a smiliar house, over the last ‘while’.

    If you can, at a later date show them your calculation at that time, I can’t see how they could say you didn’t make an ‘honest attempt’.

    If however your neighbors sell for a band above what you’re putting in, as your putting it in, you may be put in the ‘non honest attempt’ or ‘chancing their arm’ category. The consequences of which is of course unknown considering the finite resources of the revenue and the high amount of arms likely being chanced.

  8. Surely employer contribution will have to increase if Joan is to sort out the pension mess.

    How about career averaging for the civil service as per OECD suggestion?

    They’ve done it in ESB for the ‘core’ staff. Of course the vast majority of new staff in ESB are ‘subCo’, a nice HR trick to issue contracts via different sub company legal entities so the new young, better educated and more motivated staff can have worse T&C and ‘defined contribution’ pensions whilst doing the job better than the ‘Core Staff’. The 2 tier approach. Great for moral apparently.

    Though I doubt it’s as bad as the inequities that exist in the civil service. Where it’s fixed term contracts for the young, with each one providing a new surprise paragraph than the one before. Meanwhile, the lady in HR administrating the horror show to the 20/30 somethings, is less educated, motivated and avails of a range of allowances from the dark ages, with super ‘flexi time- thrown in on top of sweet sweet defined benefit pension.

  9. @ Pr Guy

    “Please advise.”

    Lend me your place in France for the summer and I’ll certainly come up with a good plan for you. A bit of wine put by wouldn’t go amiss.

  10. IA,
    With a DC scheme, what is left of your money after returns, levy, fees and charges is your money. However, if you are in a DB scheme, what you think is there may not be there now.

  11. @PR Guy,

    I’ll source a buyer for those tickets if things are tight paying the property tax 😉

  12. @ Tull McAdoo

    ‘Arse can fall out of’ any DC scheme, talk to anyone that didn’t cash out pre-2006. Besides, you’d be hard pressed to find someone that could sell you a dc pension that would match the states backed db schemes, still paying like it’s 2006. I’m not suggesting these schemes are sustainable in the long run, considering aging population, people lving longer etc they have to end, as pensions and indeed lifestyle need to adjuist to the new ‘normal’.

    What I am suggesting is that burden of this adjustment is being carried
    disprotionatily by the young. With the state front and centre when it comes to cheering on the inequity.

    Insecure conditions, less wages, more time/cost educationg oneself, longer working life and worse/no pensions. Throw it paying off the bank gaurantee and the spending binge since the ‘arse fell out of’ the tax base and it’s hard to argue current policy is exactly fair, intergenerationally speaking.

  13. The level of candour in the Die Welt article is surprising for a right of centre newspaper. For example 23% DM appreciation against the Euro. An admission that the Euro would persist and Germany would pay a high price.

    Are they coming to their senses or is this a case of one Swallow does not make a Spring.

  14. I’ve said it once I’ve said it twice and I’ll say it once again. DC or DB in a stable or growing work environment is always viable. There are two parties jointly responsible the patron (usually employer or association) and the members of the pension plan. Every three to five years there has to be an independent audit of the pension books in the case of gov’t and the actual funds and projected liabilities in the case of non gov’t organisations. The patron and the members representative then negotiate what has to be done to ensure that pensions will be paid. This includes increased contributions, reduced payout such as 1.75% per per year of service instead of 2%, delayed retirement 67 y.o. like the French instead of 60 to 65. Larger payout penalties for early retirement. Pensions should never be a bargainable right as in going on strike for a better pension. It is a business arrangement with both sides paying 50% + or – of the cost based on a mutual agreement.

    DC appears to be the riskier of the two but many companies have failed and left DB members stranded with cents on the Euro. Beware of noncontributary pension plans which some utility companies favour. Also make sure your monthly pension contribution amount appears on your monthly pay statement.

    To ensure a floor exists it is in most people’s interest that there is a national government run pension plan covering 25% to 33.33% of earned income. The management cost of such a scheme can be less than 0.3% and they are the last great bargains of our time. This eliminates the risk of Nana eating cat food.

    Pension plans are risky, forecasting is risky, the wider the risk is spread the safer we all are.

    And most important, join a political party and do your best to make sure that nominees are well educated and well grounded. No more, ass licking plamasers, overeager to please everybody and screwing things up royally.

  15. @Mickey Hickey

    “I’ve said it once I’ve said it twice and I’ll say it once again. DC or DB in a stable or growing work environment is always viable.”

    I’ve said it more than three times: the pensions industry is full of sharks in suits. I shake hands with these guys regularly and I always check my wedding ring is still on my finger afterwards.

    @All earlier replies

    I think I’ll just shoot them. No you can’t borrow the flat for the summer as I will be there. I’m still drinking what I brought back from France last year. I like the arm chancing stuff. Well put. What on earth makes you think I live in south Dublin? (I don’t….. but I used to so that’s probably just as bad)

  16. @ Inequitable Austerity

    It’s inevitable that the current carry-on with different conditions for the same work/responsibility will end in the European Court of Justice. Equal pay for women was based on that principle.

    That has been my opinion well before the Waterford Glass ruling.

    Many of the infringements of EU law by member countries are likely deliberate, to buy time.

    The bill will eventually arrive.

  17. @Michael Hennigan

    “The bill will eventually arrive.”

    The first news / press reports on the Waterford Glass Pension ruling mentioned the continuation of the levy on all private sector pension (DB/DC/Company) to pay for the bills that will arrive.

    One wonders what the government position will be.
    Will members of DC schemes with minimal pension assets, provided exclusively by themselves in many cases, end up funding shortfalls in Rolls Royce DB schemes that pay up to 66% of salary.

    Imho, the pension trustees of many of these DB schemes, have very serious cases to answer, as do the Pension Board.

  18. @ Inequitable Austerity

    You have drawn attention to the fundamental issue – equitable treatment of all – but there is little appetite for discussing it.

    It is also surprising that more attention is not paid to how tax is spent rather than how it is raised. The issue is one of internal transfers intermediated to a greater or lesser extent by governments. Scandinavian taxpayers are generally happy to pay high levels of taxation – with resultant much smaller disposable incomes – because they see that these taxes are equitably spent in terms of the big ticket items (child care, education, health, social welfare and pensions etc.) which provide the necessary level of compensation. (That not all of their citizens agree is confirmed by figure quoted on another thread that one third of the cash in circulation in Scandinavia is in the black economy!).

    The solution in each country also reflects its individual history e.g. the case of Denmark (picked at random from the web).

    http://www.taxindenmark.com/article.65.html

    The bottom line is the level of commitment in each society to equality of treatment and of opportunity. The reluctance to pay higher taxes in Ireland is a reflection of the awarenes of the individual taxpayer that such a commitment is sadly lacking.

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