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Tax and Social Welfare●●●●●Income from different sources—whether employment, selfemployment,investment, or social welfare—should, as far aspractical, be taxed in an equivalent way;The tax system should only be used to influence personal orbusiness choices where there is a clearly defined justification fordoing so, and where the tax system is an effective instrument forachieving this. Departures from neutrality should only takeplace where there are well defined externalities and where thebenefits exceed the costs;Administrative and compliance costs should be minimised;The system of taxation needs to be able to adapt to changingeconomic circumstances; andThe Council supports the continuation of earmarked socialsecurity contributions, but believes that compulsory socialinsurance contributions should be evaluated using the samecriteria that apply to the evaluation of taxes.7.3 STRUCTURE AND EVOLUTION OF TAXATIONThis section describes the main features of the tax system and keydevelopments in the period since 1987. It begins with anexamination of the total level of taxation and its composition. Thesection then examines the main developments in income, corporateand capital taxes.7.3.1 Level and Composition of TaxationThe level of taxation in relation to the size of the economy hasfallen since the late 1980s. As noted in Chapter 5, this reduction hasbeen substantially less than the corresponding reduction in theexpenditure share. In 1990, total taxation was equal to around 40per cent of GNP while by 2001 this had fallen to 34.5 per cent ofGNP. 1 This reduction was concentrated in the period 2000 to 20011. This is based on the OECD definition of taxation and is inclusive of socialsecurity taxes and the tax receipts of local government. There is a discontinuityin the GNP series after 1990 which limits the ability to compare the tax shareof GNP for years before and after 1990.291