The latest report on taxation trends in the European Union (EU), covering data for the EU Member States has been issued and in the view of Commissioner Smetana, supports the Commissions earlier recommendations to shifts revenue raising measures from labour taxes to those less detrimental to growth such as consumption taxes, recurrent property taxes and environmental taxes.
The report contains a detailed analysis of the tax system of each country including the different types of tax, tax percentages, property taxes and estimates the effective tax burden on each category.
It shows that taxes on employment were the largest source of tax revenue in 2012 for most member states, accounting for more than half of total tax revenue. The burden is, however, vastly different across the member states with Belgium having the highest tax burden on labour in 2012 at 42.8% and Malta the lowest at 23.3% (with the UK being 25.2%).
Top corporate tax rates have levelled off since the economic crisis, with the EU average remaining fairly stable since 2010 at around 23%, again with a large variation across the states from 10% to above 30%. The longer term trend is downward.
Environmental taxes have remained relatively stable in the last few years, at about 2.4% of GDP across the EU, with rates in particular States ranging from 3.9% down to 1.6%. Consumption taxes have increased in recent years to 11.2% of GDP in 2012, primarily because of increases in VAT rates but also to a growth in domestic demand in most countries. Property taxes in 2012 are at an overall level of around 2.25% of GDP across the EU, but the country with the highest proportion of property taxes is the UK at 4.1% of GDP.
The overall tax-to-GDP ratio (the sum of taxes and compulsory social contributions as a percentage of GDP) was 39.4% in 2012 and 40.4% in those States that have adopted the euro, the third year in which it has increased. This upward trend is expected to continue in both areas in 2013.
The tax-to-GDP ratio in the EU is nearly 15% higher than in the United States, about 10% higher than in Japan and higher than in most developed countries. In part, this reflects the tax measures brought in to correct country deficits, as well as promote a recovery in the member states.
The Commission considers that taxes on employment should be reduced, to stimulate growth, but this evidence of a shift has yet to materialise. It also considers that VAT systems could and should be made more efficient and that environmental taxes could be used to deal with any shortfalls. Overall the message is that "growth-friendly taxation must be put at the heart of [countries] structural reforms."
The report is lengthy and very detailed but is a useful summary of recent trends in taxation in the last few years. It remains to be seen if the general guidance of the Commission in respect of taxation is taken up by countries in order to deal with the on-going risk of deflation and stagnation, particularly in the Eurozone.
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