Eurostat says Ireland’s tax-to-GDP ratio now lowest in Europe

Ireland now has the lowest tax-to-GDP measure across 30 European countries, new figures from Eurostat have shown. The metric is calculated by dividing the tax revenue collected by the Government from the gross domestic product (GDP). When tax revenues grow at a slower rate than the GDP, the ratio falls, and the metric is sometimes used to identify low tax economies, although given the importance of multinationals to the Irish economy, it can be difficult to compare Ireland with other economies.

According to the figures, Ireland had the lowest tax revenues as a percentage of GDP in 2015, at just 24.4 per cent, behind Romania (28 per cent), Bulgaria (29 per cent), Lithuania (29.4 per cent) and Latvia (29.5 per cent). The overall tax-to-GDP ratio for the EU was considerably higher, at 40 per cent, stable compared with 2014. In the euro zone, tax revenue accounted in 2015 for 41.4 per cent of GDP, slightly down from 41.5 per cent in 2014.

Eurostat does caution, however, that Irish GDP in 2015 was "substantially affected by the relocation from outside the EU to Ireland of balance sheets of large multinational enterprises". Indeed, figures from the Central Statistics Office (CSO), which showed a 26 per cent-plus growth rate in GDP for 2015, were later dismissed by some commentators as "leprechaun economics".

In 2014, Ireland’s ratio stood at 29.9 per cent; the 5.5 per cent decline in the ratio is also the largest noted in the report, ahead of Denmark (-26 per cent) and Belgium (-0.5 per cent). Lithuania saw the greatest improvement in its ratio, up by 1.5 per cent. While the distortion in GDP figures are a significant factor behind the 2015 result, the ratio has been in decline for some time; in 2009 Ireland’s tax-to-GDP ratio was 34 per cent.

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Countries known for their high tax and social welfare regimes, including France (47.9 per cent) and Denmark (47.6 per cent), were at the top of the table. They were followed by Belgium (47.5 per cent); Austria (44.4 per cent), Sweden (44.2 per cent), Finland (44.1 per cent) and Italy (43.5 per cent). The UK, at 30 per cent, is in the middle of the table.