Brussels, 10/06/2011 (Agence Europe) - Using the calculations by Ernst & Young and New Direction-Foundation for the European Reform, the Institut Economique Molinari (IEM) think-tank has calculated how one has to work in 2011 before you keep your earnings and stop paying the state (tax freedom day) across the European Union. Along with Belgium and Hungary, France, with its non-transparent way of working out social expenditure and purchasing power reduced by high taxes and charges, is one of the three member states where income is taxed the highest. At the other end of the scale are Cyprus, Malta, Ireland and Luxembourg, the countries in the EU where workers are taxed the least.
Entitled “Tax Burden on the Average Worker within the EU”, the research compares and contrasts the tax burden in all EU27 member states and works out when tax freedom day occurs in each country. The authors, Cécile Philippe, IEM director, and James Roger, IEM researcher, say that the research compares the tax burden in different countries using data reflecting the practical experience of workers in the EU, and measures the true cost of employment in each country. The authors explain that the tax freedom day is the day in the year when a worker has earned enough to cover all taxes due to the state and starts working for him/herself.
The key findings are as follows:
(1) Taxes are on the rise in Europe. The average real tax rate for typical EU wage earners rose by 0.25% in 2011 - primarily a consequence of VAT increases in 13 EU member states since 2009.
(2) Taxes are over 50% of earnings in six countries - Belgium, Hungary, France, Austria, Germany and Sweden. This means that the average worker in any of these countries directly controls less than half his/her income, having at best only indirect influence on how most of his/her income is used!
(3) There are further gaps, not related to tax bands, in income tax across the EU. Belgium, Hungary and France are the three countries which levy the highest income tax. In these countries, employers pay €2.30 or more for each €1 net earned by employees. Belgium has the latest tax freedom day (4 August) and is the most punishing country when it comes to tax, beating Hungary (29 July) and France (26 July). At the other end of the scale, Cyprus (13 March), Malta (16 April), Ireland (10 May), Luxembourg (17 May) and the United Kingdom (17 May) are the EU countries levying the lowest taxes on average workers. Luxembourg has moved up one level since 2010 because the UK has increased VAT to cut its public deficit.
The research shows that there is no connection between “progressive” taxation (tax bands rather than a flat-rate tax) and total tax. The countries with the lowest average rates have a “progressive” income tax system: Cyprus, Slovenia, Poland, Malta and Greece. The countries with a flat rate tax average workers at 46.4% rather than 43.3% for the rest of the EU. The flat rate countries are Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Romania.
(4) Social security payments are largely hidden to workers. Virtually all EU countries combine employer contributions to social security with worker contributions, which hides the real cost of welfare. This lack of transparency is very pronounced in France, where employer contributions are set at 50% of gross salary - the highest in the EU, and employer and employee contributions combined are 66% of gross salary, again the highest in the EU. Payslips are highly complex, hiding the true cost of social security.
The study sheds light on the controversy in France about purchasing power and tax convergence with Germany. The study shows that the purchasing power of the French is greatly hampered by high taxes and charges. For each euro of net income provided to employees in France, employers have to pay out €2.30.
French workers pay higher taxes than German workers for comparable levels of public and social services. For each euro of net income provided to workers in Germany, employers pay out EUR 2.10 and Germany's tax freedom day is 11 July, a fortnight earlier than in France. Further information: http://www.institutmolinari.org (G. B./transl.fl)