EU tax revenues fall to the lowest since 2011

The European Commission presented its Annual Report on Taxation, noting that total tax revenues have fallen to 39% of GDP—the lowest level in 14 years. Analysts attribute this to shrinking receipts from environmental and property taxes, temporary anti-crisis measures, and structural changes in the economy.

A moderate shift in the tax mix

The Annual Report on Taxation 2025 finds the EU’s tax structure relatively stable over the past decade, but with notable shifts beneath the surface. Revenues from labour fell to 51.2% of the total, and from consumption to 26.9%. Capital taxes increased to 21.9%, reflecting higher corporate profits. Revenue losses from non-compliance remain a problem: the Commission estimates corporate income tax under-collection close to €40bn in 2018, while the VAT gap reached €89bn in 2022. In some member states, 3%–40% of assessed corporate and personal income taxes go unpaid. With persistent budget deficits and high public debt, these gaps put major pressure on public finances.

Demographics: the looming fiscal challenge

Population ageing is a serious challenge for EU tax systems. Rising social-spending needs alongside a shrinking workforce may require rebalancing away from labour taxes. The trend also affects tax administrations themselves, where the average employee age is approaching retirement. By mid-century, pension spending is projected to increase by 10+ percentage points of GDP, severely limiting room to finance other priorities—from innovation to housing. Without tax-mix changes, budget pressures will intensify and the sustainability of social protection systems will be at risk.

Audits help at the margin: about 10 million checks in 2022 yielded €105bn in additional revenue. Expanding online filing services also boosts voluntary compliance. The EU offers member states expert support and funding to modernise tax administrations and align national systems with EU-wide priorities. New mechanisms aim to increase transparency, counter evasion, and deepen mutual assistance.

In 2024, member states reported 466 reforms, focusing mainly on simpler administration and competitiveness. Nearly half (47%) reduced tax burdens, 35% increased them. Adjustments to support households and new industries were also included.

“Fair contribution” from the wealthiest

The Commission stresses the need for a “fair contribution” from high-income and high-wealth individuals. Member states could consider broader use of tools targeting wealthy taxpayers—net wealth, inheritance, gift and exit taxes when capital is moved abroad. Such measures are seen not only as revenue sources, but as ways to reduce wealth inequality. If individuals with net worth above $1bn paid a minimum 2% levy, G20 budgets could gain $200–250bn annually. At the same time, the report recommends lowering taxes on labour.

The report also notes that the diversity of national tax approaches complicates EU-level coordination, and tax policy should support the Union’s strategic goals. In a context of global uncertainty, resilient, flexible and fair systems are key to European competitiveness—especially amid strained trade relations with the US and two nearby theatres of war that have worsened the fiscal position of EU countries.

Macro backdrop

After two years of sluggish growth, the EU economy is expected to see only a moderate recovery: 1.1% GDP growth in 2025 and 1.5% in 2026. Inflation is set to ease from 2.3% to 1.9%, but high debt and higher interest rates will constrain fiscal capacity across most member states.

Experts emphasise that tax policy is no longer just a revenue tool—it is a lever for long-term resilience, investment, and social cohesion. Gerassimos Thomas, Director-General of DG TAXUD, said the EU is at a “critical juncture,” seeking to align growth, the green transition, and fairness.