The European Union remains an area of high taxes. This claim is not a distorted point of view from the right-wing perspective, but an opening statement of the latest analysis conducted by Eurostat and the European Commission, which focuses on the long-term trends in taxation in the EU. Among the myriad of facts, it is worthwhile to point out a couple of essential ones.

First of all, taxes in the EU are high in comparison with its main competitors. While the tax revenue as a percentage of GDP in 2011 was 25.2 % in the USA and 28.7 % in Japan, it was 38.8 % in the EU, according to the methodology used by Eurostat. Taxes in the EU are also high compared to most of the other developed countries in the world. Among the non-European OECD member states, there are only two countries – Canada and New Zealand – that have this proportion higher than 30 %.  This is not good news for Slovakia, because our economic outlook depends on that of the large European countries. They are our main trading partners and high taxes certainly do not make them more competitive with the rest of the world. If the figures of the EU as a whole are depressing, then the Eurozone’s figures are even worse. The share of taxes to GDP of the single-currency club, which also includes Slovakia, is approaching 40 percent.

Secondly, regarding the level of tax burdens, there are enormous differences within the EU itself. The share of taxes to GDP ranges from 26% in Lithuania to 47.7 % in Denmark. This proportion is substantially higher in the so-called old member states of the EU, which rank high (occupying the first nine positions) among countries with the highest tax burden. By contrast, low taxes are a typical feature of the so-called new EU member states. It is in their interest to maintain this low level. The existence of large taxation differences within the EU means a great advantage for us. Calls for the harmonization of taxation are an attempt to destroy the competition in the field of taxes.  However, the voices in favor of this come from Slovakia too.  They claim that what we need is to catch up the original EU members. Of course, in terms of tax rates. It would be a severe blow to Slovakia, because the last thing it needs, is a poor economic performance combined with high Danish taxes.

The third point is about the developing trends in taxation.  In 2008 and 2009 the proportion of taxes to GDP decreased, only to grow again in 2011, when it reached its pre-crisis level. In that year, tax revenues increased in absolute terms and according to Eurostat’s estimates this trend also continued in 2012, where we can see growth both in absolute terms and terms relative to GDP. Finance ministers should not blindly drive their attention to short-term fluctuations in tax revenues, but they should focus much more on  reversing the trend of continual tax increases, which we have been observing, with the exception of a few brief moments, since the second half of the 60’s.

Ján Oravec, published in Hospodárske Noviny, 2 October 2013

Translated by Richard Kramár.