Foible Taxation, the Main Cause of Public Deficit
As a ratio of GDP, in 2021 tax revenue (including net social contributions) accounted for 41.7% of GDP in the European Union (EU) and 42.2% of GDP in the euro area (EA-19). The ratio tax revenue to GDP was highest in Denmark (48.8%), France (47.0%) and Belgium (46.0%), followed by Austria (43.7%), Italy (43.6%), Sweden (43.5%) and Finland (43.1%); the lowest shares were recorded in Ireland (21.9%), Romania (27.3%), Bulgaria (30.7%), Latvia (30.8%), Malta (31.2%) and Lithuania (32.6%). This situation makes taxation the main cause of public deficit. With public revenues even as low as Bulgaria or Latvia, Romania wouldn’t be outside the maximum 3% of GDP requirement for deficit.
Taxes on production and imports (D.2) are divided into taxes on products (D.21), which are payable per unit of some good or service produced or transacted, and other taxes on production (D.29). The most important type of taxes on production and imports is VAT. In 2021, in the EU, revenue from taxes on products accounted for about 82% and VAT for around 54% of the total taxes on production and imports.
In 2021, the highest ratios of taxes on production and imports relative to GDP were recorded in Sweden (21.7%), Croatia (19.1%) and Hungary (17.8%), in line with the relatively high overall level of taxation in Sweden. The lowest ratios of these indirect taxes were recorded for Ireland (7.1%), Romania (10.8%), Malta (11.0%), Germany (11.1%), Czechia (11.7%), Luxembourg (12.0%) and Lithuania (12.3%).
Capital taxes (D.91) are taxes levied at irregular and infrequent intervals on the net worth or value of assets owned, or transferred in the form of legacies or gifts, an example being an inheritance tax. These taxes accounted for 0.3% of GDP in the EU in 2021. They range from 0.8% of GDP in Belgium, 0.7% of GDP in France, 0.5% of GDP in Spain, to being non-existent in Estonia, Portugal, Romania, Slovakia and Sweden.
Current taxes on income, wealth, etc. (D.5) include taxes on income (D.51) and other current taxes (D.59). Taxes on income cover both taxes on individual or household income and the income or profits of corporations, and include taxes on holding gains. At the level of the EU in 2021, current taxes on income, wealth etc. as a ratio to GDP amounted to 13.3%, while taxes on individual or household income made up the largest share of this (at 9.8% of GDP).
By far the highest importance of current taxes on income, wealth, etc. is noted for Denmark, which raised the equivalent of 32.2% of GDP from these taxes in 2021. The next-highest figures are recorded by Sweden, Finland, Belgium and Luxembourg, which raise 18.4%, 16.7%, 15.9% and 15.8% of GDP, respectively, from current taxes on income, wealth etc. At the other end of the scale in 2021, Romania (5.2% of GDP), Croatia and Hungary (both 5.6%) had relatively small revenue from these taxes and also show a generally low tax-to-GDP ratio. This will be a very hard problem to tackle politically, but an increase in this segment is a must if we are to align gradually with the European practice.
The only case in which we are really integrated in the European fiscal structures is the social security funds subsector. It was relatively important in terms of tax revenue in France (52.3 % of the total), followed by Slovenia (42.2 %), Slovakia (41.7 %), Germany (38.8 %), Romania (36.4 % of tax revenue) and Poland (34.7 %).
All these certified European figures suggest that, in order to maintain the level of public spending, which is not much by the EU standards, Romania needs to increase with at least 3 percentage points of GDP or 10% relative to current level the revenues of the public budget. Not only to keep in line with similar countries in the region, but to further benefit from substantial European development funds (around 3% of GDP), which are dependent of maintaining the fiscal deficit according to the adjustment programme convened with European Commission.
Photo source: Nataliya Vaitkevich (pexels.com).