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Ireland’s tax burden is below the OECD average – but personal income taxes are higher
By Sean Whelan, Economics Correspondent
The OECD has been looking at the impact of the economic and financial crisis on taxation.
It’s part of their regular “Revenue Trends” series, with tax data going back to 1965. So what does it tell us?
The top line story from the OECD is that, at the onset of the crisis, tax revenue as a share of GDP fell in almost all the OECD countries.
From 34.2% in 2007, the tax ratio fell 1.5 percentage points to 32.7% by 2009.
Since then governments have been rebuilding their revenues, through renewed economic growth or through tax increases.
By the end of 2013, the tax GDP ratio for the OECD stood at 34.1%, just a little below the 2007 peak.
But of course there are variations between countries.
Of the 34 OECD states, 18 still had tax GDP ratios lower than in 2007 – including Ireland – while 15 countries saw an increase in their ratios. Only the Netherlands was unchanged.
The biggest fall in the tax ration between 2007 and 2013 was in Israel, which declined by 4.2 percentage points.
Next came Spain (3.8 points) Iceland (3.2 points) Chile (2.7) and New Zealand (2.4). Ireland’s ratio fell by a fraction over two percentage points (leaving it exactly in the middle of the 18 countries that saw a decline).
The biggest rise in tax revenues came in Turkey (up 5.2 points) followed by France (2.7) Greece (2.6) Finland (2.5) and Belgium (2.2).
Ireland – along with Canada, Sweden and Hungary – declined by more than the OECD average in the years to 2011.
In overall terms Ireland is ranked 29th out of 34 countries for tax as a share of GDP, with a ratio of 27.3%, compared with an average for the OECD of 33.7%. Only Switzerland, Korea, USA Chile and Mexico are lower.
The Average tax revenue per capita in the OECD is $14,190 US dollars.
For Ireland its $13,204, just over four hundred bucks less than the UK ($13,608), but a bit more than the USA ($12,554). But the Irish tax take is significantly lower than European states we like to measure ourselves against – such as Finland ($20,244), Denmark ($27,134), Austria ($20,152), Iceland ($15,668), and Holland ($17,852).
And the big ones we don’t tend to benchmark against, but which are politically important in the Euro area, like Germany ($15,724) and France ($18,618).
So why doesn’t it feel like we are living in a low tax economy?
The answer is personal income tax – Ireland takes a much higher share of its tax from incomes than the OECV average – 33% here, 25% for the average.
The OECD’s press release says we have a lower corporate tax take than the average – but the figures in the report don’t really bear that out – 8% here v 8.5% for the OECD average.
On property taxes we are ahead of the average by a similar margin (so much for no property tax in Ireland stories!), while the share of taxes on goods and services is higher – at 35% here vs the average of 33% – as is VAT 22% vs an average of 20%.
The big area where Ireland’s tax take is significantly below the average is in social security contributions, which make up 15% of Irish tax, compared with an OECD average of 26%.
An important point to bear in mind here is the very big difference between GDP and GNP in Ireland.
In most countries the difference between GDP – a measure of output – and GNP –effectively a measure of income – is negligible. But not here.
And taxes are paid from income, not output.
To lower income taxes, the government (if it is to meet its spending promises) would have to broaden the tax base by taxing other things to offset any falls in income tax.
The small print in the OECD report has a few ideas from other countries.
The Netherlands, as might be expected, is quite creative – government revenues include and excise on soft drinks (raising €132m) a levy on noise pollution (€46m), a tax on outdoor advertising (€19m), Dog licenses (€68m) levies on water pollution (€1.2bn), sewage charges (€1.4bn), hunting and shooting permits (€2m) and a levy on surplus manure (€3m).
Near neighbours Belgium manage to extract tax contributions worth €36m from not-for –profit organisations, and collect €63m from the Diamond industry in Antwerp.
Finland takes €901m in betting taxes (compared to €27m here), but also taxes lottery winnings to the tune of €210m a year.
It also has excise on non-alcoholic drinks worth €197m, and has a €1m sugar levy as well. The Finns only take €2m in dog licenses, but take €23m in hunting and fishing licenses. They also have a levy of €7m to fund nuclear energy research.
The Germans are the champion dog taxers – raising €288m in 2013, far outstripping the paltry €13m on hunting and fishing (this is out of a tax take that is a smidge over one trillion Euro).
Beer is also lightly taxed in Germany – raising just €690m. Champagne, by contrast, is taxed to the tune of €465m (tobacco taxes take in €17bn). And there is a tax on coffee that raises just over a billion a year, just slightly more than a new tax on Aviation.
Demographics mean the government will be constantly under pressure to increase spending, while elections mean it is constantly under pressure to cut income taxes.
So it is going to have to consider other sources of tax revenue over the long run – especially if it starts to lose corporation tax revenues. Surplus manure anyone?