Submitted by Taps Coogan on the 28th of November 2017 to The Sounding Line.
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As the following infographic from Statista.com shows, of the world’s 35 developed market OECD countries, the ten most heavily taxed are all found in Europe. Topping the list, Denmark, France, Belgium, Sweden, Finland, Italy, and Austria all collect over 40% of their respective GDP’s in taxes. As Statista notes:
“Elsewhere, the tax-to-GDP ratio is sometimes considerably lower. New Zealand (32.1 percent), Canada (31.7 percent), the United States (26 percent) and Chile (20.4 percent) have ratios that are all well below the OECD average. Europeans looking to move to places with a lower tax burden do not necessarily have to leave the continent though. Ireland, with a tax-to-GDP ratio of only 23 percent, is still a better choice than South Korea, Turkey or Israel (26.3, 25.5 and 31.2 percent).”
It is no coincidence that Ireland has seen the fastest long term growth in the EU.
You will find more statistics at Statista
While the high tax burdens in these European countries may appear to simply be the ‘European’ way of running an economy, the long term sustainability of such high tax burdens is doubtful. With some of the lowest economic growth rates in the world and no net job creation since 2008, the Eurozone and the EU have become consistent economic under-performers. For years, growth in government debt has outstripped these countries’ modest economic growth and the costs of servicing that debt will rise dangerously if interest rates ever normalize. In France, Italy, Portugal, and Ireland, interest expenses on the national debt are already consuming over 15% of tax revenues. At the same time, the welfare and entitlement programs that consume the lion’s share of tax revenues are seeing costs skyrocket as populations age and people leave the workforce. In France, for example, barely two people are working per retiree according to Bloomberg.
One can see a perfect storm emerging: stagnant long term growth, systemic-underemployment, already too high debt levels, already high interest expenses, rising entitlement costs, tax rates which can’t be raised any higher, and interest rates which have only one direction to go (up).
Given all of this, no easy solutions emerge. Cutting taxes without cutting spending will send the debts surging even higher. Yet when 40%+ of the economy is government spending, cutting spending risks slowing down growth even further. Cutting spending also inevitably means cutting entitlement programs which, in addition to being politically impossible, would ruin the lives of millions who planned on those programs.
In this way, the ECB’s insistence, after nearly a decade, on continuing indefinitely its QE program and its other extremely accommodative monetary policies, can be seen as a simple act of delaying the inevitable. While the can kicking may go on for some time more, reality will assert itself eventually.
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