TAX NEWS - June 2010

EU Tax: Tax revenue in the European Union fell to 40.5% of GDP in 2008

Tax revenue (including social contributions e.g. PRSI) in the European Union fell to 40.5% of GDP (gross domestic product) in 2008 as the recession resulted in revenues falling faster than economic output. In the Eurozone, the ratio fell from 41.5% in 2007 to 40.9% in 2008. The growth of both tax revenue and nominal GDP, in absolute terms, slowed in 2008, recording the lowest increases in both EU-27 and EA-16 over the period 1998-2008.

Eurostat, the EU's statistics office, says the ratio of tax revenue to GDP was highest in Denmark and Sweden (49.0% and 47.9% respectively in 2008), while it was generally lower in the countries joining the EU since 2004; the lowest share was in Romania, at 28.8% (more than 20 percentage points of GDP lower than Denmark in 2008). There are exceptions, however; the tax revenue-to-GDP ratios in Ireland, Spain and Greece are amongst the lowest in the EU (Ireland had the fifth lowest ratio at 30.8%).

After Denmark and Sweden, Belgium had a ratio of tax revenue to GDP well above the EU-27 average at 46.5%, while for almost half of the EU-27 countries plus Norway and Iceland, the ratio was within +/- 4 percentage points of the EU-27 average. Among the countries joining the EU since 2004, Hungary posted the highest tax revenue to-GDP ratio, reaching the same level as the EU average.

Eurostat said it is interesting to note that the arithmetical average of the 27 countries is somewhat lower (37.8%) than the GDP weighted EU average, because of the relatively low levels of GDP (and therefore low weight) for the countries which tend to have the lower tax revenue.
 
In Denmark and, to a lesser extent, also in the United Kingdom and Ireland the shares of social contributions to total tax revenues are relatively low compared to the EU-15 average. In Denmark, most welfare spending is financed out of general taxation. The share of direct taxation to total tax revenues in Denmark is in fact the highest in the Union.

Germany has the highest share of social contributions in the total tax revenues. Germany's share of direct tax revenues, on the other hand, is the lowest in the EU-15. France also has a relatively high share of social contributions and a corresponding relatively low share of direct tax revenues, compared to the EU-15 average.

Using GNP (Gross National Product) for Ireland, which is about 18% below GDP as the profits of the multinational sector are excluded, the ratio for tax and social contributions is 37.8%.

In 2008, the total tax and social revenues for Ireland was €56.0bn -- down from €63bn in 2007.

Ireland collected €47bn in tax in 2007; €42.0bn in 2008; €33bn in 2009 and the official target is €31bn in 2010.

Tax revenues in 2003 were €33bn when total government spending (current and capital) was €43bn.

In 2009, total government spending was €73bn.