29 OECD Europe OECD America France Italy Belgium United Kingdom Ireland Denmark Spain Greece United States Mexico Canada OECD Total European Union (15) Germany Portugal Korea 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 -2 -1,5 -1 -0,5 0 0,5 1 1,5 2 INCREASE 1965-2003 (percentage points) Revenues from property taxes / GDP (%) (2003) TAXES ON PROPERTY Data source: OECD Revenue Statistics (2006). Figure 8: Development of the property tax revenues over GDP ratio 1965-2003 3.3 Important trends in the development of the German tax system Since 1950 three trends have been especially important for the development of the German tax system. First, the importance of taxes for total public revenues (excluding social security) has strongly increased. Public revenues include e.g. fees for publicly provided services, privatization receipts or the surplus of the Bundesbank, the German Central Bank. The upper part of Figure 9 shows that tax revenues grew faster than total revenues till the end of the 1960s and that total revenues over GDP showed a stronger downward trend than tax revenues since the early 1980s.26 Based on these two developments the share of tax revenues over total revenues increased strongly from around 26 The figure is based on Bundesbank data (on public revenues) and tax statistics of the Federal Statistical Office. 30 68.7% in 1950 to 88.2% in 2004 while the importance of other revenues decreased respectively (see lower part of Figure 9).27 18% 20% 22% 24% 26% 28% 30% 32% 19 50 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 Total public revenues (excl. social security)/ GDP Tax revenues/GDP 60% 65% 70% 75% 80% 85% 90% 19 50 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 Tax revenues/total public revenues (excl. social security) IMPORTANCE OF TAX REVENUES - GERMANY 1950-2004 Data source:Bundesbank/Federal Statistical Office. Revenues/GDP Tax Revenues/ Total Revenues Figure 9: Importance of tax revenues for public revenues Second, the number of taxes has decreased substantially since the early 1950s. Compared to 1952 – when the tax system relied on 47 different taxes28 – the number of taxes which yield positive revenues decreased strongly to 39 in 2006 (see Figure 10). A closer look at newly introduced and abolished taxes shows that since 1950 15 taxes29 have been abolished while only seven taxes30 have been newly introduced 27 One important exception is the year 2000, when extraordinarily high privatization receipts of around €50bn (from auctioning the UMTS telecommunication licenses) made public revenues grew far stronger than tax revenues. 28 We calculated the number of taxes and the abolishment and introduction of taxes based on revenue statistics from the Federal Statistical Office and from tax laws. We integrated only taxes which yield positive revenues and are separately displayed in national tax revenue statistics. Wage and income taxes (including the interest withholding tax) are counted as one tax. Customs are not integrated. 29 Abolished taxes (by first year of no revenues): tax on commercial papers (1965), tax on sweetener (1966), transportation tax (1971), supplementary surcharge (1977), payroll tax (1980), tax on acetic acid (1981), tax on playing cards (1981), tax on matches (1981), match 31 (see the lower part of Figure 10). Abolishment of taxes took place especially in the early 1980s and the 1990s and was strongly affected by the harmonization of consumption taxes within in the EU. New taxes were introduced especially after reunification in 1990 (five out of seven new taxes). However, most newly introduced as well as the abolished taxes have been only of minor importance for tax revenues. Of the abolished taxes the net wealth tax was important in revenues terms, while in newly introduced taxes the solidarity surcharge (in effect since 1991) and the tax on electricity (in effect since 1999) yield substantial revenues. 34 36 38 40 42 44 46 48 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 Number of taxes -3 -2 -1 0 1 2 3 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 Newly introcuced taxes Abolished taxes NUMBER OF TAXES - GERMANY 1950-2004 Source: Based on tax laws. Absolute Absolute Figure 10: Development of the number of taxes The third important trend has been a strong increase in the concentration of the tax mix which is usually measured by the Herfindahl index31. The Herfindahl index for the revenue structure of the German tax system increased from 0.13 in 1951 to 0.22 in 2004 (if all components of the wage and income tax are counted as one tax) or monopoly tax (1983), bills of exchange tax (1992), excises on sugar, tea and illuminants (1993), net wealth tax (1997), and local business capital tax (1998). 30 Newly introduced taxes (by first year of positive revenues): supplementary surcharge (1968), special input duties (1987), solidarity surcharge (1991), intermediate goods tax (1994), second home and packaging tax (1997), electricity tax (1999). 31 See e.g. Heyndels/Smolders (1994 and 1995), Wagner (1976) or Breeden/Hunter (1985). 32 from 0.11 to 0.19 (if the different components of the wage and income tax are treated separately) (see the upper part of Figure 11). 0,0% 0,1% 0,2% 0,3% 0,4% 0,5% 0,6% 0,7% 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 Smallest 15 taxes Smallest 10 taxes 20% 30% 40% 50% 60% 70% 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 Income and Wage Tax and VAT Income and Wage Tax 0 0,05 0,1 0,15 0,2 0,25 0,3 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 Herfindahl Index; tax revenues (wage and income tax as one tax) Herfindahl Index; tax revenues (all components of wage and income tax seperated) TAX MIX CONCENTRATION - GERMANY 1950-2004 Data source: Federal Statistical Office (2007). Index Revenues/Total tax revenues Revenues/Total tax revenues Figure 11: Development of the tax mix concentration A closer look at the development of the revenue shares of different taxes shows that the increasing concentration of the tax mix resulted from the largest two taxes (wage and income tax and VAT in the middle graph of Figure 11). The share of the two most important taxes increased strongly while concentration at the lower bound has changed only marginally (see the development of the smallest 10 and the smallest 15 taxes in the lower graph of Figure 11). 4 The relationship of social security contributions and taxation Social security contributions are integrated in many analyses of taxation and tax policy. Therefore, we shortly review the development of the social security system. We discuss its relation to taxation and tax policy and the arguments for and against an integration of social security contributions in our analysis of the political economy of taxation.