Labor tax burden in Estonia drops

TALLINN - The ratio of labor taxes in gross domestic product (GDP) for 2010 was 18.3 percent, which decreased by a half percentage point compared to the previous year, show data at Statistics Estonia, reports news agency LETA. In 2010, the general government’s revenue from taxes and social security contributions decreased by 112.8 million euros compared to the previous year, bringing in to the state 4.8 billion euros. Receipts from labor taxes were 2.6 billion euros, which represents more than half of the state tax revenues. A higher share of labor 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 labor taxes in GDP was 23 percent in 2009. A similar ratio of labor tax as in Estonia was in Luxembourg and United Kingdom (18.9 percent and 18.3 percent, respectively). The highest 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 labor taxation. In 2009, in Latvia the ratio of labor taxes in GDP was 13.9 percent and in Lithuania 15.8 percent.

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 labor 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 labor taxes may in some countries be higher due to the additional contributions to the private pension funds and private health insurance. Sweden, where labor taxes accounted for 29.4 percent of GDP in 2009, receives the majority of taxes on labor from income tax. Germany, which is also one of the countries with higher labor taxes than the EU average, receives a major part of labor taxes from social contributions.