The European Commission’s 2025 Annual Report on Taxation paints a dire picture of Europe’s fiscal health.
Declining revenues, unsustainable labor tax dependence, and a whole line of systemic vulnerabilities.
Driven by drops in environmental and property taxes, tax revenues plunged to 39 percent of GDP (the lowest since 2011).
In spite of desperate calls for diversification, 51.2 percent of the EU’s tax revenue still comes from labor (in comparison, the level is 45 percent in the U.S. and around 39-40 percent in Australia).
If this wouldn’t be enough, compliance failures hemorrhage public funds. €89 billion is missing in VAT and another €40 billion in corporate taxes. A leak no one can quite plug.
With a demographic time bomb ticking on the equation, the picture is bleak, at best.
This is only the surface of the story, though.
Reading the above-mentioned report, it seems as if the authors purposefully had avoided explicit analysis of certain topics: the gold-standard in burying major policy disasters under heaps of dry fiscal data.
But the untold story shines through the lines: how recent (and current) migration patterns exacerbate(d) those issues via hidden fiscal drains, welfare imbalances, and structural pressures on working-class Europeans.
To understand the complete picture, one must quickly turn back the wheels of time.
Facing the double burden of caring for aging populations and the obligation to sustain generous welfare systems, European policymakers embraced a seemingly bold(ish) strategy during the last decade: importing low-educated migrants.
The underlying assumption was straightforward: migrants would bolster the workforce, contribute to pensions, and support social services.
Fast forward back to the present, and it is obvious that this approach has proved to be a misguided fiscal gamble. If anything, migration’s asymmetric impact strains the very systems it aimed to protect.
Unlike intra-EU migrants, whose fiscal contribution is often more balanced or even positive, extra-EU, low-educated migrants usually cost far more than what they contribute.
A study published by the EU Joint Research Centre (JRC) in 2021 shows, using the EUROMOD model, that migrants from outside the EU usually contribute significantly less than other workers, especially when one takes into account pensions, housing support, education and unemployment benefits. The exemptions (a mere 20 percent of migrants) are those coming from the Anglo-Saxon world or Japan. They usually contribute heavily to the public budget.
Another publication of the OECD points at similar issues: unskilled migrants tend to impose net fiscal burdens, that are usually offset only if the return home.
The numbers are astonishing.
Non-Western migrants (e.g. from Africa or the Middle East) impose net fiscal costs of €200,000 to €400,000 per person. Family migration seems to be the “least problematic”, averaging a €275,000 negative net contribution, while asylum seekers are the “worst”, averaging a cost of €475,000.
Add a second generation, and the costs are even higher. Contrary to the popular claim that the second generation’s contributions can balance these costs.
Various reports highlight how migrants from the above regions regularly earn below taxation and contribution thresholds yet access full welfare benefits (think: healthcare, pensions, unemployment assistance, housing). Without offsetting contributions.
The paradox is obvious: the welfare system (that was designed to rely heavily upon labor-focused taxation) now caters for a rising share of residents who pay little while taking a lot more. This squeezes ordinary taxpayers.
Another topic, mostly ignored by the Annual Report on Taxation, is the housing crisis.
An issue of many complexities and one that cannot be completely blamed on migration, but there is a strong connection, anyways.
The social housing network had often been strained well beyond its limits in many European countries, a sort of last resort for Europeans with low(er) incomes. After the arrival of large numbers of unskilled migrants and asylum seekers, the fragile balance collapsed, and the young, elderly or disadvantaged citizens were pushed onto the rental market to make space for the newcomers.
In London, 47.6 percent of social housing is occupied by foreign born tenants, in Sweden about 50 percent. In the Netherlands, around 161,000 social housing units are occupied by recent or former asylum seekers.
Germany (for obvious reasons) has been unwilling (extremely cautious?) to publish relevant data. It is clear though, that landlords were incentivized to offer their houses when the country suddenly needed to find accommodation to the hundreds of thousands arriving. This led to surging rental prices (though not nearing Belgium’s 18 percent, rental prices in Germany rose on average 8 percent) on the “normal” housing market, making it even less affordable to many Germans.
High demand for social housing led to interminably long waiting lists: in several Dutch municipalities, the waiting time is seven plus years.
The same is true to family support: in many Western European countries, significant portions of it flow to newcomer families – and due to how the system was designed, the amount they receive (often full support) is not consistent with their tax-history.
Thus happens that lower- and middle class European tax payers now face an impossible situation.
With over 50 percent of all tax revenue coming from their labor, the fiscal burden is imbalanced.
Low skilled (hence low wage) or even unemployed migrants don’t pay income tax or social contributions, their consumption taxes (like VAT) are inadequate to sustain pension and welfare systems. This forces lower- and middle-class Europeans to shoulder the costs of both an ageing native society and a growing welfare-dependent migrant population.
At the same time, multinational companies still mitigate taxes and use highly sophisticated tax evasion tactics.
No wonder that the general trust level is at record low.
Europe’s gamble that mass low-skilled migration would save pensions and social systems has faltered. The bargain is unsustainable.
If something, it imported poverty while taxing the workers to subsidize it – Europe’s noble migration experiment is quietly torching its own tax base.
By sidestepping migration’s fiscal reality, Europe (the Commission) perpetuates a system in which labor pays, capital dodges and newcomers consume. Until tax and migration policies don’t align, Europe’s social contract will
remain a ledger of broken promises.
Because demography may be destiny, but only if the people paying for it don’t pack up and leave first.
