than the taxation of income from self-employment and than the taxation of income from capital. The
taxation of consumption is lower than the taxation of primary income.
Figure 2 – Implicit tax rates
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004
Labour - employed Income from self employment Capital Consumption Social transfers
Source: Update of VALENDUC (2004)
Table 1 - Implicit tax rates – 2000-04
2000 2001 2002 2003 2004
Labour 42.8% 42.7% 42.6% 42.6% 42.6%
Income from self-employment 29.7% 30.4% 31.2% 32.1% 33.5%
Capital 31.9% 33.1% 33.2% 32.6% 34.3%
Consumption 18.8% 17.5% 18.0% 17.9% 18.9%
Social transfers 8.3% 8.4% 8.2% 8.1% 8.0%
Source: Update of VALENDUC (2004)
The hierarchy of ITR is roughly stable over time: tax reforms only result in small changes but do not
change the fundamental message that arises from the ITR and their implications for the quality of tax
revenue: taxation relies more on primary income than on consumption and among various types of
incomes, labour is more heavily taxed than capital.
- A slight increase took place in the early nineties. Two important changes that were made in the tax
system increased the PIT component of labour taxation. The additional crisis surcharge (3% of
PIT) was introduced and the indexation of PIT was partially suspended. The tax policy stance
changed in 1999: the additional crisis surcharge was phased out, automatic, full indexation of PIT
was reintroduced and a tax cut in personal income tax, which amounts to roughly 4 billion € (1.3