New data show tax revenue collection as a share of GDP remains high in the European Union – even higher compared to that of other advanced economies.
The European Union has shown strong signs of building its ability to raise tax revenue, which is then used to provide public goods and services. According to the latest data, taxes and compulsory actual social contributions in the 27 EU Member States accounted for 40.2 % of GDP.
This is based on harmonised and comparable taxation data from EU Member States and validated by Eurostat. Presented in the European Commission’s latest edition of Taxation Trends in the European Union, the report covers all Member States, plus Iceland and Norway.
Specifically, the 2020 edition notes the 2018 percentage of 40. 2 % is 0.2 percentage points higher than in 2017. More impressive, it is almost six percentage points above the OECD average.
Also worth noting is that the tax-to-GDP ratio in the euro area also increased slightly in 2018, reaching 40.5 % (up 0.2 percentage points compared to 2017).
In relation to GDP, tax revenues rose in 20 of the 27 Member States, particularly in Luxembourg (1.6 percentage points) and Romania (1.4 percentage points).
Meanwhile, 19 Member States recorded a higher revenue in 2018 than in 2017. For example Greece led with a 7.1-percentage point increase.
As regards the tax burden in the EU, the report shows this differs from one Member State to another. Specifically, it notes that France (46.5 %), Denmark (45.1 %) and Belgium (44.8 %) have the highest tax revenue to-GDP ratio, whereas Ireland (22.6 %) and Romania (26.3 %) the lowest ratio.
From labour to environment
The report highlights the distribution of revenues by tax base (consumption, labour and capital) remained stable, compared with previous years (around 52 % from labour, 28 % from consumption and 20 % from capital).
Worth noting is that labour taxes provide the largest share of revenues, increasing slightly in 2018, up to 20.8 % of GDP. At the same time the implicit tax rate on labour remained stable for the last five years, while there are no significant changes in the top personal income tax rates across the EU. The latest data on the tax wedge for low earners, from 2019, show a constant reduction over the latest years.
As regards environmental taxes, these also displayed a stable picture in 2018 despite some changes in this field over the last decade. For instance, several countries increased their environmental revenues, in particular due to energy-related revenues.
Environmental taxes comprise taxes on energy products (including CO2 taxes), transport (excluding fuel, which is covered by the taxes on energy) and taxes on pollution and resources.
The report also highlights the high potential of environmental tax, especially as regards the application of the polluter-pays principle (as explained in article 191 of the Treaty on the Functioning of the European Union (TFEU). Its aim is for the cost of preventing, reducing or repairing environmental impairment to be borne by the polluter and not by the taxpayer.
What’s more, the ratio of environmental tax revenues to GDP differed among Member States, with Greece and Denmark (both 3.7 %) with the highest ratios, and Ireland (1.6 %) and Luxembourg (1.7 %) with the lowest.
Inspiration for teachers and students
The data and information from the 2020 report, as well as other materials, can be found on the Directorate-General for Taxation and Customs Union’s Economic Analysis web pages. Also, the Taxes in Europe database contains detailed and updated information on the most important taxes in force in the EU Member States.
Ideal for classroom lessons, the 2020 report is chockful of findings that can spark discussions and refer to the insightful resources available on TAXEDU’s teacher’s corner.
On the TAXEDU website, there’s a growing treasure trove of video clips, e-learning modules and lessons plans that can help shake up classroom lessons.
