Sunday, March 25, 2007


Eurostat has issued a report showing the tax burden in each European country from 1995 to 2005 measured as a percentage of the GDP. In 2005, the greatest levels of tax burden were noted in Sweden (52,1%), Denmark (51,2%) and Belgium (47,7%). Tax rates on individual and corporate income in those countries are very high and so is the public consumption. Sweden, for example, runs a budget surplus policy but as we may see, public consumption rate measured as the percentage of the GDP is among the highest in the world. In the report, there are substantial differences among the member states. The lowest tax-to-GDP ratios were noted in Slovakia (29,5%), Latvia (29,6%) Estonia (31,0%) and Ireland (32,2%). In those country, the economic growth between 1995 and 2005 was the highest in the EU. Ireland, for instance, slashed the marginal individual income tax rate from 60 percent to 42 percent while 12,5 percent tax rate on corporate income is still one of the lowest rock-bottom rates in the EU.

Figure: Total taxes as the percentage of the GDP between 1995 and 2005, comparision between countries

Public consumption and taxation size in Slovenia are very high. Not surprisingly, total taxes comprised 40,7 percent of the GDP in 2005. Though the government recently modified the marginal income tax from 50 percent to 41 percent, tax burden is still very high compared to the rest of Europe as the income earned on the margin has not been unburdened from heavily progressive taxation. There is also a unique payroll tax that could be immediately dismissed but the Ministry of Finance decided to erase it gradually. An important part of the tax burden in Slovenia is comprised of high social security and health care contribution rates. Unfortunately, Slovenian policymakers wasted another opportunity to implement a fundamental tax reform, to unburden the economy and productive behavior of the individuals.

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