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Sterling Heights, Mich., April 21, 2015--Western European countries are inhibiting their economies with tax burdens at least 40 percent heavier than both the global average and the average for neighboring countries in Central and Eastern Europe, according to research by UHY, the international accounting and consultancy network.

 

In the ‘Old European’ economies of Western Europe the total amount of tax taken by governments is an average of 38.9 percent of GDP, 40 percent higher than the 27.6 percent global average and higher still than the 25.9 percent average tax burden across Eastern Europe and the Balkans. 

 

In the BRIC economies the proportion of the economy claimed by the government in tax is even lower, at an average of 21 percent while the U.S. government’s ‘take’ from the economy is below the global average at 25.4 percent.

 

UHY examined 53 economies around the world, calculating what percentage of that country’s GDP is taken by the government in tax.

 

Oil-rich Nigeria has one of lowest tax burdens of any major economy at 1.6 percent of GDP, even lower than in the UAE, where government levies on foreign oil producers, banks and some hotel and leisure businesses account for 2.7 percent of the Emirates’ combined GDP. 

 

The highest tax burden in the study was in Denmark, where the total amount of tax revenue taken equates to nearly half of the country’s GDP at 48.6 percent.

 

UHY says that Western Europe’s higher taxes on businesses, individuals, investors and consumer spending could all inhibit growth. Higher taxes reduce incentives for investment and wealth creation, and prompt larger businesses to maximize returns for their investors by seeking out lower tax bases for their operations. 

 

In particular, Western Europe’s economies could be vulnerable to international rivals that are increasingly able to offer a combination of stable legal systems and highly skilled workforces. 

 

For example, the UAE and Singapore with tax burdens of 2.7 percent and 15 percent respectively are enjoying significant success in attracting corporate headquarters and professional and financial services companies, all creators of high skill, highly paid jobs. 

 

The Dubai International Financial Services has grown in the last 10 years to 1,100 companies, 70 percent of which originate from outside the Middle East, while Singapore is now home to over 200 banks and has growing expertise in other high value sectors including pharmaceuticals and medical technology.

 

Eastern European and Balkan countries are focusing on developing their industrial and manufacturing industries, offering lower taxes and lower costs than traditional Western European centers.  For example, Romania enjoyed 2.9 percent GDP growth last year, largely driven by expansion in its industrial and communications sectors.  It is becoming a growing center for the auto manufacturing industry, with Daimler, Ford and Draexlmaier all choosing Romania over Germany for new plants in recent years.

 

Comments Ladislav Hornan, Chairman of UHY: “Unless they address their tax burdens, many Western European countries could find themselves pinched between lower cost, lower tax Eastern European countries that are able to offer equally strong manufacturing skills bases, and global cities like Singapore, Dubai and Qatar, that are consciously targeting the industries that create the most wealth.”

 

UHY points out that within Western Europe, Ireland, has the lowest tax burden at 28.3 percent of GDP.  Its lower taxes are a key part of its strategy of attracting high value industries such as financial services and technology companies. Dublin’s International Financial Services Center is estimated to contribute over 7 percent of GDP with 35,000 employees, while Ireland is a major European base for 9 of the top 10 global software companies.

 

Comments Alan Farrelly of UHY Farrelly Dawe White Limited in Ireland: “While still relatively high by global standards, Ireland’s tax burden is significantly lower than in most of Western Europe.  This is a strategy that appears to be paying off: the Irish economy grew by 4.8 percent in 2014, the fastest rate in the EU, and Ireland is attracting significant levels of foreign investment – it is the number one destination for US foreign direct investment.”

 

UHY adds that the BRIC economies impose bigger tax burdens than other, smaller emerging economies, which could see emerging markets investors looking beyond the BRICs for growth. Tax amounts to an average of 21.7 percent of the BRIC economies, compared to 14.6 percent across the lower income emerging economies** in the study.

 

Adds Ladislav Hornan: “Analysts have been keen to coin all sorts of rival acronyms to the BRICs, and one reason may be that the tax burden in the BRICs, especially Brazil, is relatively high.” 

 

“For China, as economic growth starts to slow and the country gradually loses its cost advantage, especially compared with other Asian countries, the conundrum of whether and how to lower the tax burden will start to loom larger.”

 

**Nigeria, UAE, Puerto Rico, Egypt, Guatemala, Bangladesh, Peru, Singapore, Malaysia, Argentina, Romania, Croatia, Uruguay, Jamaica, Barbados

 

Country

Tax revenue as % of GDP

Denmark

48.6%

France

45.0%

Belgium

44.6%

Finland

44.0%

Sweden

42.8%

Italy

42.6%

Austria

42.5%

Norway

40.8%

Luxembourg

39.3%

Hungary

38.9%

Western Europe average

38.9%

Slovenia

36.8%

Germany

36.7%

Netherlands

36.3%

Iceland

35.5%

G7 average

34.6%

Czech Republic

34.1%

Greece

33.5%

Portugal

33.4%

United Kingdom

32.9%

Spain

32.6%

New Zealand

32.1%

Poland

32.1%

Estonia

31.8%

Canada

30.6%

Israel

30.5%

Barbados

29.8%

Slovak Republic

29.6%

Japan

29.5%

Brazil

29.5%

Turkey

29.3%

Ireland

28.3%

Global average

27.6%

Australia

27.3%

Switzerland

27.1%

Central and Eastern Europe average

25.9%

United States

25.4%

Korea

24.3%

Jamaica

23.9%

BRIC average

21.7%

China

21.0%

Chile

20.2%

Mexico

19.7%

Uruguay

19.6%

India

19.4%

Croatia

19.0%

Romania

18.0%

Argentina

17.6%

Russia

17.0%

Malaysia

16.1%

Singapore

15.1%

Lower income emerging economies average*

14.6%

Peru

14.2%

Bangladesh

12.3%

Guatemala

11.7%

Egypt

10.3%

Puerto Rico

7.6%

UAE

2.7%

Nigeria

1.6%

 

*Lower income emerging economies include: Nigeria, UAE, Puerto Rico, Egypt, Guatemala, Bangladesh, Peru, Singapore, Malaysia, Argentina, Romania, Croatia, Uruguay, Jamaica, Barbados