EU tax levels continue to rise

Overall taxation levels in Europe are at least 10% higher than in major trading partners, according to a report by the European Commission.

Taxation across the European Union has risen to its highest level since 2001, consuming an average of 39.4% of gross domestic product (GDP) and almost 15 percentage points more than in the United States, according to research published today (16 June) by the European Commission.

EU member states collected just over €5 trillion in tax in 2012, the last available year for national tax data, meaning that overall tax revenues have surpassed their previous peak achieved in 2008 before the financial crisis erupted.

Taxation rates in the eurozone remain higher than in non-eurozone member states, representing 40.4% of GDP, up slightly from 2011.

By comparison, in Australia, Canada, Japan, South Korea and Switzerland, all members of the Organisation for Economic Co-operation and Development, overall taxation represents less than 30% of GDP, while the equivalent figure in New Zealand is 31.8% and in Russia 35.6%.

The EU countries with the highest tax-to-GDP ratios are Denmark, with 48.1%, Belgium, with 45.4%, and France, with 45%. The countries with the lowest ratios are Lithuania, with 27.2%, Bulgaria, with 27.9%, and Latvia, with 27.9%.

The largest increases in overall taxation between 2011 and 2012 were seen in Hungary, where taxes increased by 1.9 percentage points to 39.2%, and Italy, where taxes increased by 1.6 percentage points to 44%.

The biggest decreases were in Portugal, where taxes fell by 0.9 percentage points, and Slovakia and the United Kingdom, where taxes fell by 0.3 percentage points.

The research also shows that national governments have done little to make their tax systems more “growth-friendly”.

The Commission has repeatedly called on national governments to shift taxes away from labour and instead to tax pollution and consumption.

But since 2008, taxes on employment across the EU have remained steady at 36% of GDP. If value-added tax has increased from a 19.5% average tax rate in 2000 to 21.5% in 2014, environmental taxes have been steady since 2009 and remain below 2003 levels.

“Labour taxation is still too high, while growth-friendly bases, such as environmental taxes, are under-used in many countries,” said Algirdas Šemeta, the European commissioner for taxation. “The tax shift away from labour, which we have consistently called for to allow our businesses to regain competitiveness, still has to materialise.”