1. INTRODUCTION 2. ANALYSIS OF TAX REVENUE IN EU 27

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1 EVOLUTION OF TAX BURN IN THE EU 27 Nandra Eugenia Ramona Babes-Bolyai University, Cluj Napoca, Romania, Faculty of Economics and Business Administration, T. Mihali Street, no , Phone: , , address: This paper presents some aspects concerning the tax burden in the space of European Union after the last enlargement of the European Union. It is focused on the analysis of tax revenue on for the EU members. Also analysis the evolution of structure of tax revenues by the main categories: direct, indirect taxes and social contributions. The conclusion is that in the indirect taxation space is harmonization and for the direct taxation figure indicates the existing of tax competition. Key words: tax burden, fiscal reforms, tax revenue, tax competition 1. INTDUCTION The European Union is a consequence of the integration efforts of its members. The European Community is based on the rule that competition should be a mechanism to allocate the economic resources (Article 98 of the EC Treaty). This rule is central to the European project since the Treaty of Rome in So the uniform conditions should be secured for all competitors in the European market. Following this argument, tax rules should not hamper the free movement of goods, services (including freedom of establishments), labour and capital. 2. ANALYS OF TAX REVENUE IN EU 27 Government revenue in the form of taxes and social contributions increased in the EU-25 in 2005 from 40.5% (2004) to 40.9% of and in the EU-27 stood at 40.8% of, compared with 40.4% in In the euro area 12 there was a slightly smaller increase from 40.9% to 41.2% of. In the EU-25, tax revenue (including social contributions) reached its highest level relative to since the year Tax revenue was at a low point in 2004, and the 2005 level remains somewhat below earlier years. The trend for the euro area has been fairly similar to that of the EU-25, but at a slightly higher absolute level. For the NMS (those which joined the EU in 2004 and 2007), the level of tax burden is very low just 34%. Over a longer period, tax revenue as a percentage of in both the EU-25 and the euro area were in 2005 slightly below the levels recorded in The arithmetical average of the 25 countries is 38.7%, somewhat below the weighted EU-25 average this reflects the relatively low levels of (and therefore low weight) of the countries which tend to have the lower tax revenue. In 2005, as compared with 2004, tax revenue as a proportion of rose in nineteen Member States, fell in six and remained stable in Germany and Greece. The highest increases in the tax-to- ratio were recorded in Cyprus (from 34.1% in 2004 to 36.2% in 2005), Malta (from 36.2% to 37.7%), Poland (from 32.7% to 34.2%) and Denmark (from 49.9% to 51.2%). The largest reductions were observed in Austria (from 44.4% to 43.6%), the Czech Republic (from 36.8% to 36.3%), Estonia (from 31.5% to 31.0%) and Slovakia (from 30.0% to 29.5%). Table 1 Total Taxes (incl. SSC) as % of Change EU ,2 40,6 40,5 40,4 40,8-0,4 EA13 41,4 42,6 41,7 41,2 41,2 40,9 41,2-0,2 EU25 41,1 42,1 41,2 40,6 40,6 40,5 40,9-0,2 EA12 41,4 42,6 41,7 41,2 41,2 40,9 41,2-0,2 45,9 47,3 47,4 47,5 47,1 47,4 47,7 +1,8 BG 32,5 32,6 31,4 30,2 32,9 34,6 34,8 +2,2 CZ 36,2 33, ,8 35,8 36,8 36,3 +0,1 49,8 50,2 49,3 48,7 48,7 49,9 51,2 +1,4 41,3 43,3 41, ,1 40,2 40,2-1,1 EE 37,9 31,3 30,2 31,2 31,6 31,5 31-6,9 IE 34,9 32,9 31,1 29,8 30,5 31,9 32,2-2,7 EL 34, ,7 38,9 37,8 36,7 36,7 +2 ES 33,6 34,8 34,3 34,7 34,7 35,4 36,4 +2,8 44,5 45,9 45,6 44,9 44, ,8 +1,3 41,8 42,1 41,8 41,2 41, ,8-1 26,9 30,5 31,5 31,5 33,3 34,1 36,2 +9,3 1 Monika Wozowczyk, Anne Paternoster, 2007, Tax revenue in the EU, Statistics in focus, Economy and Finance, 31/

2 LV 33,2 29,7 28,7 28,4 28,7 28,7 29,6-3,6 LT 28,6 30,2 28,7 28,4 28,2 28,6 29,2 +0,6 LU 38, , ,4 38,8 39,1 +0,9 HU 41,7 38, ,6 38,5 38,7 38,6-3,1 MT 31 29,2 31,5 33,1 33,2 36,2 37,7 +6,7 NL 41,4 40,9 39,4 38,7 38,4 38,7 39,2-2,2 43,6 44,8 46,5 45,5 44,8 44,4 43,6 0 32, ,6 34,3 33,4 32,7 34,2 +1,8 32,7 35,2 34,8 35,6 36,3 35,4 36,3 +3,6 27,8 27,9 27,8 28,6 28,1 27,8 28, ,5 38,9 39,2 39,6 39,8 39,9 40,7 +0,2 39, , , ,5-10,2 46,3 47,4 44,7 44,7 44,1 43,7 44-2,3 49,7 54,1 52,1 50, ,3 52,1 +2,4 36,9 38,9 38,7 37,3 37,1 37,4 38,6 +1,7 Among the Member States there were substantial differences in the tax-to- ratio. The highest ratios in 2005 were in Sweden (52.1%), followed by Denmark (51.2%), Belgium (47.7%), France (45.8%), Finland (44.0%) and Austria (43.6%) this countries are above the EU-25 average. The lowest ratios were observed in Romania (28.8%), Lithuania (29.2%), Slovakia (29.5%), Latvia (29.6%), Estonia (31.0%) and Ireland (32.2%). Figure 1 Total taxes as % in EU countries BG CZ EE IE EL ES LU HU NL MT LV LT NO Figure 2 Total tax revenue in the EU as a % of EU-25 EU-15 (average ) EUR-12 (average ) NMS-10 (average ) Between 2004 and 2005 the most significant changes in the amount of tax revenue measured in terms of were in Cyprus (+2.1 percentage points), Malta and Poland (+1.5), Denmark (+1.3), United Kingdom (+1.2), and Romania (+1.1). There were notable falls in the Czech Republic, Estonia, Slovakia, and most of all Austria (-0.8 percentage points). And between 1995 and 2005 in Slovakia (-10,2) and Estonia (-6,9) are the most important falls and Cyprus and Malta are in the opposite side. Figure 3 482

3 Changes in Total taxes as % of EU25 EA12 BG CZ EE IE EL ES LV LT LU HU MT NL The 2004 accession of ten new Member States resulted in an increase in diversity: the new Member states have in common significantly lower tax ratios than the old EU-15 and even display different trends over time: while in the EU-15 tax ratios generally increased until the turn of the century and declined afterwards, in the NMS-12 the opposite occurred. 3. ANALYS OF TAX REVENUE BY MAIN CEGORIES AS % IN The tax mix, or distribution of revenue sources by type of tax, is a structural variable that generally evolves only slowly. Nevertheless, it has been receiving renewed policy attention recently, in light of the worries that increased capital mobility and the accession to the EU of a group of low-tax countries might lead to even greater reliance on taxation of immobile factors (such as labour) than has been the case so far. In most Member States, social contributions account for a greater share of labour taxes than the personal income tax. Despite the large cuts in corporate income tax rates, in the NMS-12, unlike in the EU-15, revenues from the corporate income tax have been stable or growing slightly since 2001, a similar moderate rebound is visible also in other related indicators such as revenue from taxes on capital and business income taxes. Given the fact that the NMS-12 have shown significantly higher rates of growth in the last five years, it is difficult to distinguish the effect of higher growth, which pushes up revenue, from that of rate cuts; it is also not clear to what extent base-broadening measures, which have been a feature of recent corporate tax reforms, offset the cuts in the statutory rate. At EU27 level, the three main categories of taxes contribute roughly equally to total tax revenue: in 2005 taxes on production and imports, such as V, import and excise duties, accounted for 34% of the total tax revenue (indirect taxation), taxes on income and wealth for 31% (direct taxation) and actual social contributions for 32%. Figure 4 Tax revenue by main categories as % in total tax burden % 80% 60% 40% 20% 0% EU25 EA12 BG CZ EE IE EL ES LV LT LU HU MT Source: Eurostat, NL Production and imports Income and wealth Actual social contributions NO However, the structure of taxation varies considerably between Member States. In 2005, Bulgaria (19.0%), Denmark (17.9%) and Cyprus (17.4%) had the highest ratios of taxes on production and imports to, compared to an EU27 average of 13.8%. On the other hand, Lithuania (11.5%), the Czech Republic (11.9%) and Germany (12.1%) recorded the lowest ratios. With regard to taxes on income and wealth, Denmark (31.2%), Sweden (20.1%) and Finland (17.5%) recorded the highest ratios to, compared to an EU27 average of 12.8%, while Romania (5.3%), Bulgaria and Slovakia (both 6.1%) registered the lowest ratios. 483

4 Table 2 Tax revenue by main tax categories, % of Indirect taxation Direct taxation Social contributions Tax rate % Countries Tax rate % Countries Tax rate % Countries 1. Min rate 11,5 LT 6,1 BG, 1,1 2. Average rate 13,8 EU27 12,8 EU27 13 EU27 3. Max rate 19 BG 31,2 16,4 Difference (3)-(1) 7,5 25,1 15,3 Standard dev. 1,9 5,39 3,55 Interpretation Harmonization Tax competition Average of harmonization and tax competition Source: Eurostat, For actual social contributions, the highest ratios to were observed in Germany (16.7%), France (16.4%) and the Czech Republic (15.1%), compared to an EU27 average of 13.0%, whereas Denmark (1.1%), Ireland (4.8%) and Malta (7.2%) recorded the lowest ratios. Denmark's social security system is, in fact, almost exclusively financed by general taxation. Taxes on both labor income and capital income tend to be inversely related to growth tares among nations. Taxes on capital income are also associated with investment ratesanalysis suggests that a 10 % reduction in tax rates on profits could increase investment by 2%. 2 CONCLUONS Each EU Member State is sovereign in determining the appropriate size and composition of its budget - on both the expenditure and revenue sides in such a way that budget positions remain close to balance. The only qualification is that Community rules and principles should be respected. Within the Internal Market a high degree of harmonization of indirect taxes is desirable. Without it significant obstacles to the free movement of goods and the free supply of services could appear. This is why a significant degree of harmonization of V has already been achieved. In the direct tax field a certain degree of tax competition is not only inevitable but also desirable, provided it takes the form of fair tax competition. This forces governments to offer the best possible conditions for business at a given level of taxation.decisions on the location of investments are however driven primarily by more complex economic considerations and not simply by tax factors. 2 Hyman, D. N., (1999): Public Finance-A Contemporary Application of Thory to Policy, Sixth Edition, The Dryden Press, Harcourt Brace College Publishers, p

5 BIBLIOGRAPHY: 1. Hyman, D. N., (1999): Public Finance-A Contemporary Application of Thory to Policy, Sixth Edition, The Dryden Press, Harcourt Brace College Publishers 2. Wozowczyk, M., Paternoster, A., (2007), Tax revenue in the EU, Statistics in focus, Economy and Finance, 31/