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News : Irish Economy Last Updated: Mar 10, 2011 - 7:39 AM

Richest EU countries have the highest taxes; Irish tax burden will be as high as Denmark's by 2014
By Michael Hennigan, Founder and Editor of Finfacts
Mar 9, 2011 - 4:42 AM

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The richest EU countries have the highest taxes and the Irish tax burden will be as high as Denmark's by 2014

In calculating the Irish tax burden here, we use GNP (gross national product) as a denominator because the main differential with GDP (gross domestic product), the profits of the dominant multinational sector, are excluded.

Using GNP for Ireland, the tax burden ratio (including social security type charges such as PRSI) was 38.6% in 1995; 36.9% in 2007 and 34.9% in 2008 compared with the GDP ratio of 29.3%.

The rates for Denmark, were 48.8% in 1995; 49.0% in 2007 and  48.2% in 2008. 

Taxation trends in the EU 2010 - - Main results (pdf)  --  see above Table A on Page 28

Ireland's National Recovery Plan 2010-2014 estimates that Irish GDP will be €183.5bn in 2014 and GNP will be €143.4bn - - the difference has expanded from less than 20% in recent times to 28% as exports from the foreign-owned sector have not created new jobs in the domestic economy.

Government revenue as a percentage of GNP in 2014 will be 48.6%.

The EU (European Union) says the overall tax ratio ranges over more than twenty points of GDP, from 28.0% in Romania to 48.2% in Denmark. In other words, the tax burden in the highest-taxing EU Member State is over 70% higher than in the least taxing one.

These large differences of course depend mainly on social policy choices like public or private provision of services such as old age pensions, health insurance and education, on the extent of public employment, or of State activities, etc.. Technical factors also play a role: some countries provide social or economic assistance via tax reductions rather than direct government spending, while social transfers are exempted from taxes and social security contributions in some member countries but not in others. It should also be highlighted that the GDP value, that constitutes the denominator of the overall tax ratio, includes estimates of production by the informal sector (the ‘grey’ and ‘black’ economy); so that not only low taxes, but also high tax evasion can result in a low overall tax ratio.

In 2008, the top personal income tax (PIT) rate amounted to 37.5%, on average, in the EU. This rate varies very substantially within the Union, ranging from a minimum of 10% in Bulgaria to a maximum of 56.4% in Sweden. Denmark, which levied the highest PIT maximum rate until last year, has cut it to 51.5%.

The report says as a general rule, tax-to-GDP ratios tend to be significantly higher in the old EU-15 states (i.e. the 15 member countries that joined the Union before 2004) than in the 12 new members; the first seven positions in terms of overall tax ratio are occupied by old member countries. There are exceptions, however; for example, Ireland’s and Greece’s tax ratios were amongst the lowest in the EU; the Spanish overall tax ratio, having dropped by some four points in 2008, was just above Greece’s.

Among the OECD developed countries, in the period 2004-2007, Ireland was in 14th place for per capita public spending; Norway was second after Luxembourg (this is an anomaly as many of the Duchy's workers live in neighbouring countries). Sweden was third, followed by Austria and Denmark.

Quality of outcomes is not easy to compare and the Irish dual private/public health system, suggests that the cost of health insurance should be viewed as a tax.

SEE: Finfacts article;  Davy says Ireland was never a wealthy country; High income in 2000-2008 largely wasted

On spending, Germany is at the upper end, spending 47% of its government spending on  social protection; Denmark spends about 43%; and Sweden, France, Luxembourg, and Finland spend 42%. South Korea is at the other end of the scale, spending about 11%, with the United States above it at 19%, Iceland at 21%, and Canada at 24%.

On defense spending, the United States tops the list, putting about 12% of government spending toward the military. South Korea is the next highest at 9%, and the United Kingdom and Greece are at 6%. Iceland and Luxembourg are at the other extreme, spending less than 1%, and Ireland, Austria, Belgium, and Germany spend about 2%.

Comparing Public Spending and Priorities Across OECD Countries (pdf)

SEE also: Finfacts blog post; Irish National Debt: Public spending was 57.3% of GNP in 2009; Deficits in 2008-2013 will amount to €95bn

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