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BackThis week, the European Commission published detailed data on taxation trends in the European Union, Iceland and Norway. In the past years, in particular as a reaction to the crisis, the EU-27 states increased in particular indirect taxes. The race-to-the-bottom of corporate taxes slowed down during the crisis, whilst the tax burden on labour was reduced in some countries. However, another trend seems to emerge in Austria.
Slowdown of the tax competition?
Over the past decades, apart from a few exceptions, the EU countries have significantly reduced their corporate tax rates. Between 1995 and 2011, the average tax rate in the EU fell from 35.3 % to 23.1 %; Ireland lowered her corporate tax rate by 27.5 percentage points to currently 12.5 %; Bulgaria even reduced her rate by 30 percentage points to 10 %. The average EU-27 tax rate is lower than in most other OECD countries, with the exception of Switzerland, Russia and Iceland. Since 1998, the effective tax rate, hence the rate, which a company would really have to pay, fell from 29.3 % to 21.8 %. However, this race-to-the-bottom had slowed down since 2008. The Commission interprets this as a consequence of the crisis.
During the period from 1995 to 2011, the top tax rate on labour, i.e. the rate, which has to be paid by those with the highest income, fell from 47.3 % to 37.1 %; however, since the beginning of the economic crisis it has remained relatively stable. According to the report, the burden on labour had been reduced during the crisis.
Increase of Value Added Taxes
The development of Value Added Taxes brings clear negative distribution effects with it. As people on lower incomes, compared to those on higher incomes, spend a larger proportion of their income, Value Added Taxes have a regressive effect. Since 2008, the average Value Added Tax rate in the EU, which over many years hovered around 19.5 %, has increased to over 20.5 % within 3 years Countries, such as Hungary and Greece, which were particularly severely affected by the crisis, increased their turnover taxes by more than four percentage points.
Development in Österreich
Compared to the EU-27 average, personal income tax contributes more and corporate tax less to the overall tax revenue. The tax burden of corporations fell in particular with the Tax Reform 2005, when the top tax rate was reduced from 43 % to 25 %. In contrast to other EU Member States, Austria did not increase Value Added Tax during the crisis. In addition, Austria no longer imposes taxes on heritages, gifts and net wealth.
There is a clear trend throughout the EU to increase indirect taxes, such as the Value Added Tax. Many regard them as less distortionary, friendlier with regard to capital accumulation and they are supposed to have less effect on competitiveness abroad. However, the shift to indirect taxes (Value Added Taxes) leads to less redistribution on the revenue side. At the same time, cuts are also made with regard to public expenditure, which benefits lower incomes relatively more.
Further Information:
Taxation Trends in the European Union
Over the past decades, apart from a few exceptions, the EU countries have significantly reduced their corporate tax rates. Between 1995 and 2011, the average tax rate in the EU fell from 35.3 % to 23.1 %; Ireland lowered her corporate tax rate by 27.5 percentage points to currently 12.5 %; Bulgaria even reduced her rate by 30 percentage points to 10 %. The average EU-27 tax rate is lower than in most other OECD countries, with the exception of Switzerland, Russia and Iceland. Since 1998, the effective tax rate, hence the rate, which a company would really have to pay, fell from 29.3 % to 21.8 %. However, this race-to-the-bottom had slowed down since 2008. The Commission interprets this as a consequence of the crisis.
During the period from 1995 to 2011, the top tax rate on labour, i.e. the rate, which has to be paid by those with the highest income, fell from 47.3 % to 37.1 %; however, since the beginning of the economic crisis it has remained relatively stable. According to the report, the burden on labour had been reduced during the crisis.
Increase of Value Added Taxes
The development of Value Added Taxes brings clear negative distribution effects with it. As people on lower incomes, compared to those on higher incomes, spend a larger proportion of their income, Value Added Taxes have a regressive effect. Since 2008, the average Value Added Tax rate in the EU, which over many years hovered around 19.5 %, has increased to over 20.5 % within 3 years Countries, such as Hungary and Greece, which were particularly severely affected by the crisis, increased their turnover taxes by more than four percentage points.
Development in Österreich
Compared to the EU-27 average, personal income tax contributes more and corporate tax less to the overall tax revenue. The tax burden of corporations fell in particular with the Tax Reform 2005, when the top tax rate was reduced from 43 % to 25 %. In contrast to other EU Member States, Austria did not increase Value Added Tax during the crisis. In addition, Austria no longer imposes taxes on heritages, gifts and net wealth.
There is a clear trend throughout the EU to increase indirect taxes, such as the Value Added Tax. Many regard them as less distortionary, friendlier with regard to capital accumulation and they are supposed to have less effect on competitiveness abroad. However, the shift to indirect taxes (Value Added Taxes) leads to less redistribution on the revenue side. At the same time, cuts are also made with regard to public expenditure, which benefits lower incomes relatively more.
Further Information:
Taxation Trends in the European Union