Where does your tax money go?
All EU Member States collect taxes, but what they do with it is based on each country’s national priorities.
There is no ‘across the board’ harmonisation of Member States’ tax systems. As long as the EU Member States adhere to EU regulations, they may implement any tax system they want. They can also spend the tax money as they wish.
The biggest source of government revenue is tax revenue (including taxes on production and imports, and taxes on income, wealth and social contributions). It accounts for a substantial share of the EU Gross Domestic Product (GDP). In 2019, tax revenue (including social contributions) stood at 41.1 % of GDP, accounting for 89.2 % of total government revenue, according to Eurostat. The same year, EU general government expenditure stood at 46.6 % of GDP.
However, EU governments don’t spend the money they collect in the same way. This explains the cross-country differences. For instance, some EU countries spend more than others. According to data published by the EU’s statistical office Eurostat, the highest government expenditure-to-GDP shares in 2019 were observed in high-income countries like France (55.6 %), Finland (53.3 %), Belgium (52.2 %) and Denmark (49.6 %). The lowest shares were in Ireland (24.8 %), Lithuania (34.9 %), Romania (36.0 %) and Bulgaria (36.3 %).
According to data published by Eurostat, government expenditure by function ranges from social protection (41 % of the total expenditure) to health (15 % of total expenditure), general public services (12 %), education (10 %), economic affairs (9.5 %) and public order and safety (3.6 %), defence (2.6 %), culture and religion (2.5 %), environmental protection (1.7 %) and housing and community amenities (1.2 %).
Social spending
Social protection represents the largest share of government expenditure in all Member States. It covers expenses related to pensions, unemployment benefits or social exclusion, for example. In 2019, this was the largest area of general government expenditure in all EU Member States, representing 19.3 % of GDP.
As seen previously, Member States don’t manage their budget dedicated to social protection the same way. In 2019, Finland, France, Denmark, Italy and Austria devoted at least 20% of GDP to social protection, while Ireland, Malta, Bulgaria and Romania spent less than 12%.
Funding healthcare
In some EU countries, healthcare is managed by the private sector, whereas other countries have public-funded schemes.
Covering medical products, equipment, hospital services or public health services, healthcare is the second largest general government expenditure. Based on Eurostat data, it represented 7 % of GDP in the EU in 2019.
The Member States that spent the most in health in 2019 were Austria (8,3 % of GDP), Denmark (8,2 %) and France (8 %), contrary to Cyprus and Latvia which spent less than 5 %.
General public services
General public services encompass expenses related to executive and legislative organs, financial and fiscal affairs or public debt transactions, for example. This type of expenditure made up 5.8 % of GDP in 2019.
Once again, Member States spent their money based on their own priorities. In Hungary, Greece, Finland, Italy and Cyprus, expenditures related to 'general public services' were higher than in the other countries.
On the other hand, Ireland, Bulgaria, Lithuania, Estonia, Latvia were the countries reporting the lowest levels of expenditure. This may be explained by the relatively low level of general government gross debt or low levels of total expenditure in these countries.
Who collects taxes and why?
EU governments play a major role in collecting taxes and re-investing the money for citizens in healthcare, pensions or social protection. The TAXEDU portal is helping the next generation of taxpayers to gain a firm understanding of the entire process.
Check out the video clip “Who collects taxes and why?” available in the Teachers’ corner. It’s so easy to find out how governments manage their budget and how all taxpayers contribute!