With the world left in a tailspin after the economic downturn, there has never been more focus on how international governments handle their domestic financial affairs and nowadays everyone has an opinion about taxation and welfare provision. As both a political and economic issue, there is no segment of society left unaffected by decisions pertaining to taxation. In the face of financial unrest, the issue becomes ever more complex as people retire sooner, live longer and contribute less in taxes. Here in Britain, the current political powers are attempting to deal with criticism about the shape of the welfare state by conceding to electorate pressure to keep taxes low. Yet how does the UK fare in a global comparison of tax rates? Below we examine several countries (with both high and low tax rates) in order to get an insight into how taxation affects the population’s quality of life and fiscal growth.

Around the world


Since countries like the UK and US structure their welfare allocations in line with a more liberal model (benefits are given to those deemed most ‘deserving’) a legitimate concern might be that such altruism results in poor economic growth. Yet as the world’s largest economy, the US remains a country associated with high living standards and prosperity. As the number one destination for migrants from around the world, with such a strong reputation it might seem surprising that the US can boast a low tax rate of just 27% on workers whilst incentives like child care and income tax credits for the poor have been increased. But it seems that the burden falls on the top 10 percent of taxpayers who will pay over 70% of the total amount collected in federal income taxes (source: CNN). By any measure America seems to provide a good compromise, offering low tax, a wealth of reasonable social safety provisions and a good quality of life.



With Scandinavian countries favouring a social democratic model (one which stresses universal values which are paid for by excessive taxation) it is perhaps no shock that Swedes put an average of 48.2 per cent of their GDP into taxes. But the Swedish quality of life is extremely enviable with good childcare, pension schemes and low unemployment proving a draw to many. Whilst personal income tax is around only 29 per cent of wages, most people (anyone earning over £32,000) will pay anything up to 60 per cent through local and state taxation. Holding an admirable sixth place on the UN’s human development index (the UK is 16th) it seems that high taxes bring high rewards (source: Guardian).



Surrounded on all sides by the highly taxed countries of Western Europe, Britain’s taxation levels don’t seem so excessive. Britain was one of the first countries in Europe to introduce the concept of a welfare state and to this day continues to offer its citizens free healthcare whilst retaining a foothold in the global economy. Although the basic rate of tax for workers ranges dramatically between 20 per cent and 40 per cent (in addition to National Insurance at 11 per cent for those earning between £105 and £770 a week) worldwide it is a country that offers one of the better standards of living.



In Germany the taxation system is based on a corporatism model. Linked to individual contributions such a system is largely reliant on a population with a strong work ethic. The largest economy in Europe, Germany taxes its workers nearly 50% of their income. Although such high taxation (Germany is one of the 10 highest taxed countries in the world) has brought about strong economic growth, it has been at the expense of welfare. Although unemployment levels that were at five million in 2005 were reduced to just three million by 2012, for the unemployed raised retirement ages, higher contributions for health insurance and less financial support during periods of joblessness has lead to widespread dissatisfaction.



Last month, The Guardian reported Australia’s 21st anniversary of economic growth. With taxation levels in Australia hitting record lows in the last few years, the country  now has the fifth lowest tax burden of 34 countries including South Korea, Chile, the United States and Mexico. Yet it seems that Australia’s welfare system is showing the strain with more than 84,000 Australian single parents having their parental support payments cut when their youngest child turns eight. In addition to this, the demolition of unemployment support (as part of an attempt to force people into low-paying jobs) has insulated the economy at the expense of an annual loss of around 260,000 Australian citizens who seek a better quality of life overseas.

Whilst PwC released studies earlier this year which connected lower taxes with stronger economic growth in the long-term, increased global uncertainty sees governments forced to reform their tax systems with alarming frequency in order to ease the economic strain. Whilst increased taxation is often unfavorable with citizens, as we have seen, some countries are able to trade off short-term dissatisfaction against long term improved social conditions. As contribution-based welfare states often draw migrants and new financial blood to a country, boasting admirable benefits is immeasurable in terms of future economic growth. It seems that paying higher tax in the short term results in better quality of life in the long-term.


Thanks to the Saga Annuities team for sending us this article. For more analysis and advice, check out the personal finance news section on the Saga website