The statutory tax rates on both labour and capital are high; the corporate income tax rate is only lower than that in Germany, where the Government recently announced a cut of 9 percentage points. An excessive level of taxation and the variability and complexity of tax rules discourage investment in physical and human capital and raise the cost of compliance.
Only by permanently reducing current expenditure can the deficit be curbed and the debt lowered without increasing the tax burden. Since 2000 primary current expenditure has risen by an average of one percentage point more per year than GDP. Its ratio to GDP has reached 40 per cent, comparable to the highest post-war levels. The expenditure mechanisms need to be changed.