Tax rate among EU's lowest

The Republic boasts one of the lowest tax regimes in the EU, ranking behind only Latvia and Lithuania in terms of the overall tax burden compared to national wealth.

A new study published by Eurostat also shows the Republic reduced its tax burden to 30.2 percent of gross domestic product (GDP) in 2004, down from 33.1 per cent in 1995. This is significantly lower than the two highest tax regimes in Europe, which are Sweden with 50.2 per cent tax and Denmark with 48.8 per cent.

The survey highlights that the EU is one of the most heavily taxed areas in the world with an average tax burden of 39.3 per cent in 2004, which is some 14 percentage points above the US and Japan. The EU tax burden has not changed significantly since 1995, when it was 39.7 per cent.

But the European Commission cautioned against the view that less taxation meant more economic growth. "We must not fall into the trap of saying that high taxes automatically mean less growth," said Marco Fantini, co-author of the report. "If you spend it intelligently, it is conducive to growth."

The study works on the basis that the tax-to-GDP ratio figure represents a good measure of the overall tax burden.

The Republic also enjoys one of the lowest labour tax rates, at 26.3 per cent. Only Cyprus, Malta and the UK levy lower rates on workers of 23.1 per cent, 23.9 per cent and 24.8 per cent respectively. Average labour taxes in the EU have been relatively stable over the past decade, with 35.9 per cent in 2004 compared to 35.7 per cent in 1995.

In contrast, the tax rate on consumption rose from 20.8 per cent in 2001 to 21.9 per cent in 2004. Consumption was most taxed in Denmark at 33.3 per cent. In the Republic it was 26.5 per cent while the EU average was 21.9 per cent.