The ratio of labour taxes in GDP decreased last year

Posted on 31 March 2011, 11:00

According to Statistics Estonia, in 2010 the ratio of labour taxes in gross domestic product (GDP) was 18.3% and it decreased by a half percentage points compared to the previous year.

In 2010, the general government’s revenue from taxes and social security contributions decreased by 112.8 million euros (1.7 billion kroons) compared to the previous year, bringing in to the state 4.8 billion euros (75.7 billion kroons). Receipts from the labour taxes were 2.6 billion euros (41.6 billion kroons), which represents more than a half of the state tax revenues. A higher share of labour taxes falls on the employer, including pension contributions, health insurance and unemployment insurance. Employees carry the obligation of income tax and part of the unemployment insurance.

In the European Union (EU 27) the ratio of labour taxes in GDP was 23% in 2009. The similar ratio of labour tax as in Estonia was in Luxembourg and United Kingdom (18.9% and 18.3%, respectively). The most highly was the workforce taxed in Sweden, Denmark and Austria and the lowest in Romania, Malta and Bulgaria. Latvia and Lithuania belong to the ten EU Member States with the lowest labour taxation. In 2009, in Latvia the ratio of labour taxes in GDP was 13.9% and in Lithuania 15.8%.

However, it should be taken into account that in the European Union the implementation of direct taxes belongs to the competence of each Member State and they can develop their own tax system. The share of income tax and social contribution among labour taxes varies in different countries. An important role is played by both the tax rates as well as differences in financing of the social system. Thus, the real burden of labour taxes may in some countries be higher due to the additional contributions to the private pension funds and private health insurance. Sweden, where labour taxes accounted for 29.4% of GDP in 2009, receives the majority of taxes on labour from income tax. Germany, which is also one of the countries with higher labour taxes than the EU average, receives the major part of labour taxes from social contributions. In Estonia the share of social contributions exceeds the receipts from the income tax more than twice, but in Finland the share of income tax and social security contributions are more or less equal.

The ratio of labour taxes in the European Union Member States, 2009

Diagram: The ratio of labour taxes in the European Union Member States, 2009