Tax in Ireland and Europe
Overview of Tax Revenue in Ireland and Europe
Ireland’s tax revenue is low by European Union and Organisation for Economic Cooperation and Development (OECD) standards; in fact Ireland has one of the lowest tax burdens in the industrialised world, according to the Organisation for Economic Cooperation Development (OECD). Taxing Wages 2007/2008 compares the shares of employee earnings collected by governments in OECD countries through taxation. The study calculates what it calls the ‘tax wedge’, the difference between labour costs to the employer and the net take-home pay of the employee, including any cash benefits from government welfare programmes. It breaks this information down into different family types. For example in 2008, for single workers without children, the tax wedge varied widely across OECD countries; the highest tax wedge in the OECD countries was in Belgium (56%), followed by Hungary (54.1%) and Germany (52%). At the other end of the scale, Mexico had the lowest tax wedge in the OECD at 15.1% followed by Korea 20.3% and New Zealand (21.1%). Ireland is fourth from bottom with a total tax wedge of 22.9%.
According to Eurostat the Irish total tax ratio in 2007 (including social security contributions) as a percentage of GDP was 31.2%, in Denmark the ratio was 48.7%, in Finland it was 43%, in Portugal 36.8% and in the UK 36.3%. The EU27 GDP weighted average was 27.4%. When social security contributions are included, the Irish total tax ratio slips to last place in EU15. In the EU27, Ireland’s total tax ratio is fifth lowest. It is worth noting however, that if social security contributions are excluded Ireland comes ninth in the EU27.
The wide differences in tax levels across the European Union reflect public policy choices such as public or private provision of services. Additionally, some Member States choose to provide social or economic assistance via tax reductions rather than direct government spending. In other words, supports to individual families, are made through the tax system rather than by direct payment. In other Member States, social transfers are exempted from taxes and social contributions. Both of these policy choices affect the level of the tax-to-GDP ratios.
Tax Rates in Ireland and Europe
Implicit tax rates (ITR) facilitate comparisons on the overall impact of tax burdens on different types of economic income or activities, i.e. on labour, consumption and capital. In 2008, the highest top rates on personal income are found in Denmark (59.0%), Sweden (56.4%) and Belgium (53.7%). The lowest rates are in Bulgaria (10%), Czech Republic (15%) and Romania (16%). Ireland’s rate at 41% is 12th lowest tying with Slovenia.
The highest statutory tax rates on 2009 corporate income are recorded in France (34.4%), Belgium (34.0%) and Italy (31.4%) and the lowest in the EU15 is Ireland (12.5%). Bulgaria and Cyprus have the lowest rates in EU27 at 10%.
Among the EU15, the implicit tax rate on labour ranged in 2007 from 44% in Italy, 43.1% in Sweden and 42.3% in Belgium to 25.7% in Ireland. Again, Ireland has the lowest rate in the EU15 and the third lowest rate in the EU27, Malta has the lowest rate overall (20.1%).
Implicit tax rates on consumption were highest in 2007 in Denmark (33.7%), Sweden (27.8%) and Luxembourg (26.9%) and lowest in Greece (15.4%), Spain (15.9%) and Italy (17.1%). In Ireland the rate was 25.6%, this is the 7th highest rate in the EU.
In the EU15, the highest implicit tax rates on capital were recorded in Denmark (44.9%), United Kingdom (42.7%), and the Spain (42.4%), and the lowest in the Estonia (10.3%) and Lithuania (12.1). In the EU15, Ireland (18.5%) has the third lowest rate after the Netherlands (16.4%) and Luxembourg (12.1%). Ireland has sixth lowest rate in EU27.