Since its introduction by the Act of 15 July 1914, income tax (IR) has undergone numerous changes and has been at the centre of many debates. It is based on two fundamental principles: the requirement to declare all categories of income within the tax household and the progressive nature of the tax rates. With the abolition of schedular taxes in 1949 and the introduction of the Family quotient in 1945, it took on its modern form from the early 1950s onwards. In the post-war period up to 1980, the tax burden of income tax rose to 5.6 per cent of GDP. Between 1914 and 1986, the top marginal rate generally exceeded 60 per cent. Following this period, the reduction in the number of tax bands, the fall in marginal rates and the expansion of ‘tax relief schemes’ were accompanied by a decline in income tax revenue, which stood at 2.4 per cent of GDP in 2009. This downward trend in income tax has not been accompanied by a reduction in compulsory levies but rather by a shift towards other levies, notably the General Social Contribution (CSG), the other form of income tax.
1914–2014: a hundred years of income tax
The purpose of this note is to put into perspective the debates and developments surrounding income tax, a tax that is often criticised but which has, so far, survived all calls for its abolition.
Reference IPP Policy Brief No. 12
Presentation
Key Results
- The share of income tax in total public revenue fell from 12 per cent in 1981 to 6 per cent of compulsory levies in the early 2000s.
- The proportion of households liable for income tax rose from less than 2 per cent in 1916 to 20 per cent in 1955. It peaked in 1985 at nearly 65 per cent and has remained stable at around 50 per cent since 1986.
- The effective tax rate for the wealthiest 1 per cent rose until 1982 (average rate of 34.2 per cent) and has since fallen (to 25 per cent in 1998).
- The middle and lower classes – the bottom 90 per cent of the income distribution – have seen their share of total tax paid rise from less than 15 per cent in the 1950s to 35 per cent since the 1970s.
Method and Data
This document brings together the annexes relating to IPP Policy Brief No. 12. It provides the data required to produce the charts, which are included at the end of this document. For each statistical series, it is indicated whether it has been calculated (shown in grey) or from which source it is derived.
Mathias André
