Part I

Overall tax revenue

Graph 1.12: Development of top personal income tax

rate

O
v
e
r
a
l
l

1995-2012, in %
52%
50%
48%
46%
44%
42%

Between 2000 and 2010 the components of the ITR on

labour changed markedly in several Member States
(see Graph 1.14). Personal income taxation of labour as
well as employers' SSC and payroll taxes went down
markedly, while employees' SSC only slightly
decreased (all as a percentage of total labour costs). For
the euro area the declines were considerably smaller on
average, and mainly consisted of a reduction in
personal income taxation.

40%
38%
36%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

t
a
x

EU-27

EA-17

Source: Commission services

PIT accounts for only one third of labour taxes

Of course, the picture given by the PIT rates is
incomplete. Not only the level and change of the top

r
e
v
e
n
u
e

PIT rate is relevant, but also the income level at which

they are applied. Moreover, the progression of PIT
rates applied, the structure of allowances and tax
credits, and the definition of the tax base play a key
role in defining the effective tax burden. This is very
aptly illustrated by the fact that the ITR on labour
declined only marginally in the 19952009 period,
despite the strong reduction in the top PIT rates.

Looking at changes in single Member States, most of

the countries reduced their ITR; the change was to a
large extent driven by reductions in PIT or employers'
SSC. In many countries one notices a shift in the
different components of the tax burden.
Graph 1.14: Evolution of the composition of the implicit
tax rate on labour
2000-2010, differences in percentage points
10%

5%

0%

-5%

-10%

-15%

Graph 1.13: Composition of the implicit tax rate on

labour

CY ES LU NL PT IT AT MT UK EE FR BE DE HU CZ IE
Personal income tax

2010, in %

Note:

Employees' SSC

SI EL PL LV SK FI DK RO SE LT BG

Employers' SSC and payroll taxes

EU- EA27 17

ITR on labour

Countries are ordered by the change in the ITR on labour

Source: Commission services

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%
IT

BE

FR

AT

HU

FI

CZ

SE

DE

EE

NL

Personal income tax

SI

DK

ES

LV

SK

Employees' SSC

LU

LT

EL

PL

RO CY

IE

UK

BG

PT

MT

EU- EA27 17

Employers' SSC and payroll taxes

Source: Commission services

In most Member States, social security contributions

account for a much greater share of labour taxes than
the personal income tax. On average, about two thirds
of the overall ITR on labour consists of non-wage
labour costs paid by both employees and employers
(see Graph 1.13). Only in Denmark, Ireland and the
United Kingdom do personal income taxes form a
relatively large part of the total charges paid on labour
income, while in countries like Poland, Greece or
Slovakia less than 20 % of the ITR on labour consists
of the personal income tax.

32

Taxation trends in the European Union

This increase can be plausibly attributed to the effect of

the economic and financial crisis as until 2009, there
had been a clear, steady and widespread downward
trend in the top rate. Indeed, from 1995 to 2009, almost
all EU Member States cut their top rate, with only three
keeping it unchanged (Malta, Austria and the United
Kingdom) and one (Portugal) increasing it slightly.
Even taking into account the subsequent rate increase
in 2010, all in all, the EU-27 average has gone down by
9.3 percentage points since 1995, accelerating after
2000 (see Table 1.3). The fall was most noticeable in
the Central and Eastern European countries, with the
biggest cuts taking place in four countries that adopted
flat rate systems, Bulgaria ( 30.0 percentage points),
the Czech Republic ( 17.0), Romania ( 24.0) and
Slovakia ( 23.0); the acceleration after 2000 was,
however, visible also in the EU-15 Member States.