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In the modern Western world, there is a structured division between wealth generation and societal responsibility, supported by defined mechanisms for financing that responsibility.
State financing is complex in both the number of components and the number of exceptions. This analysis does not attempt to capture that full complexity, but instead establishes a simplified structural view to enable evaluation of how effectively resources are used.
Charges for taxation and social insurance are applied at multiple points where money changes hands (“money makes the world go around”). A practical starting point is to examine what happens to earned income (“balancing the books”).
What Are Deductions?
Within commercial employment—when money transfers from employer to employee—a set of mandatory charges is applied. These include:
- Income tax
- Health insurance
- Pension contributions
- Unemployment insurance
- Long-term care insurance
- Accident insurance
These charges:
- Are compulsory
- Are linked to employment activity
- Are shared between employee and employer
- Form a primary mechanism for financing state-supported systems
The resources collected contribute to systems including:
- Healthcare and long-term care
- Income support during unemployment
- Pension and retirement systems
- Infrastructure enabling commerce
- National defence and international relations
- Education for the wider population
- Public administration and governance
What Deductions Are Not
These charges:
- Are not a direct payment for specific services used by an individual
- Do not correspond to a measurable “cost per employee”
- Are not proportionally linked to individual consumption or benefit
- Do not function as a transactional “bill” for state services
The allocation of resources:
- Is distributed across multiple systems and institutions
- Is pooled across the population and across time
- Includes both
- Direct support (e.g. healthcare, unemployment) and
- Indirect support (e.g. infrastructure, legal systems, defence)
What Is the Intent of These Deductions?
These systems collectively support the existence of a stable and functioning workforce within a modern Western framework.
They are intended to:
- Capture the interface between commercial activity and the individual taxpayer
- Maintain a minimum standard of living across the population
- Provide protection against predictable life risks (illness, unemployment, old age)
- Enable the infrastructure and stability required for wealth generation
- Support long-term societal continuity, including investment in future capability
What Is Not the Primary Intent
These deductions are not primarily designed to:
- Operate as a precise, usage-based charging system
- Directly reflect the value created by any one employee
- Function as a short-term financial optimisation mechanism
- Explicitly discourage wealth creation
However:
The structure and scale of these deductions may influence behaviour, including incentives to work, invest, or generate additional income.
Paying More Than What It Costs
As an individual, the second point of interaction with state-imposed costs occurs not when earning—but when spending.
When purchasing goods or services, money flows from the individual to a private company. At this point, the state may again apply charges, typically in the form of consumption taxes or duties.
Unlike employment-based deductions, these charges are tied not to income, but to transactions.
What Are Purchase-Based State Costs?
State-imposed costs on purchases may serve multiple functions:
- General taxation based on price (e.g. value-added consumption taxes)
- Funding for specific external costs associated with a product
- e.g. waste disposal, environmental impact
- Behavioural adjustments, including:
- Higher taxes on goods considered harmful (e.g. tobacco, alcohol)
- Lower taxes or subsidies to encourage desired behaviour
- Luxury-based taxation, where higher-value goods attract higher contributions
What Purchase-Based State Costs Are Not
These charges:
- Are not a direct reflection of the production cost of an item
- Do not represent a precise cost to the state per item consumed
- Are not purely determined by market value alone
- Should be distinguished from:
- Private service charges (e.g. compliance costs passed on by companies)
What Is the Intent of State Costs on Purchases?
These charges capture the:
Individual buyer → Seller interface
They are intended to:
- Generate revenue linked to consumption rather than income
- Act as a counterbalance within the economic cycle
- earning → saving → spending → reinvestment
- Influence behaviour where necessary
- Contribute to the funding of shared systems from the expenditure side
What Is Not the Primary Intent
State costs on purchases are not primarily designed to:
- Operate as a precise, usage-based charging system per item
- Directly reflect the value created by a specific product
- Function as a short-term optimisation tool for individuals
- Completely discourage spending
However:
As with employment deductions, these charges can influence behaviour—affecting consumption patterns, savings decisions, and investment choices.
Framing the State
The previous sections described the two forms of taxation most visible to the individual: taxation applied when earning and taxation applied when spending. There are, however, many additional methods through which the state acquires resources, including but not limited to:
- Inheritance tax
- Corporation tax
- Import duties and tariffs
The existence of multiple taxation methods distributes where and how the burden of supporting the state becomes visible within society. While the methods differ, the underlying consequence remains the same:
Resources are transferred from private funds into collectively managed systems to support the functions and responsibilities of the state.
The total cost of the services provided by the state ultimately determines the level of resources that must be collected. Some systems are openly recognised as taxation, while others are framed as insurance or contributions.
A state pension system, for example, is often not perceived by the public as a tax because the individual contributing is expected to benefit from those contributions later in life. Structurally, however, the economic consequence is similar:
- Revenue is transferred to state-managed systems
- Responsibility for future risk shifts from the individual toward the state
- The state assumes responsibility for the collection, management, and redistribution of those resources
This does not eliminate private-sector participation entirely, but it changes the balance between:
- Individual responsibility
- Private commercial provision
- Collective state provision
From this perspective, the total burden placed upon the systems that create revenue includes the financing of systems such as:
- Pension and retirement support
- State medical and healthcare systems
- Law and order
- Foreign policy and defence
- Education
- Infrastructure and transport systems
- Public administration and governance
The state may divide these responsibilities across many departments, agencies, and financial accounts, but the broader consequence remains unchanged:
The resources required to sustain these systems must ultimately originate from productive economic activity within society.
As discussed previously in Money Makes the World Go Around, the points in society where these burdens are collected influence the overall “shape” of the economy. Salary expectations, consumer prices, investment behaviour, and corporate operating costs all adapt in response to the burdens imposed.
For corporations, the total cost of production is influenced by these burdens. This can make some states more attractive than others for manufacturing, investment, or employment, encouraging the migration of capital and production toward regions of lower cost or higher efficiency.
However, this optimisation problem is not straightforward.
Not all state expenditure acts purely as a burden upon productive activity. Many state-supported systems — such as infrastructure, education, legal stability, healthcare, and security — may also increase productivity, stability, and long-term economic capability.
The challenge therefore is not simply minimizing cost, but determining:
Whether the resources extracted from society produce outcomes that justify their economic weight.
Modern Times German Questions
Germany has historically been one of the world’s strongest economic powers while comprising approximately 1% of the global population. Unlike many nations, Germany is not resource-rich relative to many major powers and therefore depends heavily upon the capability, education, and productivity of its population.
Despite its economic strength, Germany does not possess the highest standard of living within Europe. Some smaller European and Scandinavian nations perform better in several quality-of-life measures.
In 2026, the changing dynamics of the modern Cold War and the evolving political topology of the world have caused many to question the scope of Germany’s state services and their associated costs.
The purpose of the following section is not to make a political argument, but to use Germany as a structural example through which questions of state efficiency, resource consumption, and service provision can be examined.
Germany has two very large categories of state-related income.
1. Tax Revenue (Steuereinnahmen)
This is what the German Federal Ministry of Finance (Bundesfinanzministerium) typically refers to as “tax revenue.”
This includes:
- Income tax
- VAT (Mehrwertsteuer)
- Corporation tax
- Energy tax
- Tobacco tax
- Trade tax
- Capital gains taxes
- And many others
For 2024, total German tax revenue was approximately €948 billion across:
- Federal government
- Länder (states)
- Municipalities
2. Social Contributions (Sozialbeiträge)
The second major category represents a significant withdrawal of resources from commercial wealth generators and includes:
- Pension insurance
- Health insurance
- Unemployment insurance
- Long-term care insurance
- Accident insurance
These are often treated statistically as “social contributions” rather than taxes, even though they are:
- Mandatory
- State-regulated
- Economically similar to compulsory transfers
Combined, these two categories represent a total state financial burden of approximately €1.5 trillion per year.
The insurance systems later return money back into society when pensions are paid, healthcare costs are covered, and unemployment support is provided. From the perspective of financial flow, however, the resources must first be generated within the productive economy before they can be redistributed through these systems.
The insurance systems therefore redistribute resources across:
- Time
- Population
- Circumstance
- Risk
Comparative Context
The purpose of the following table is not to provide a perfect economic model, but to compile orientation data for comparison and demonstrate how examining the same information from different perspectives reveals different conclusions.
The table does not capture every nuance associated with national economies. It does, however, help illustrate the structural consequences of different social and economic decisions.
The estimates for:
- Tax-to-GDP ratio
- Portion of the population in direct state employment
are based primarily upon OECD Revenue Statistics.
For orientation purposes, the German state burden will be estimated at €1.5 trillion per annum. This deliberately conservative approximation will provide the reference point for scaling comparative values for the remaining G7 nations.
Approximate G7 Data (2024–2026)
| Country | State Economic Characteristics | Population (million) | Percentage State Employees | No. State Employees (million) | Tax to GDP Ratio | State Burden Trillion Euro (estimated) | Public Revenue per State Employee (Euro/Employee/Year) |
| 🇺🇸 USA | Lower tax / lower social contribution model | 341 | 15% | 51.15 | 27% | 4.216* | 82,417 |
| 🇯🇵 Japan | Rising over decades | 124 | 9% | 11.16 | 35% | 1.987* | 178,063 |
| 🇩🇪 Germany | High social insurance burden | 84 | 13% | 10.92 | 39% | 1.500 | 137,363 |
| 🇫🇷 France | Very high state/social model | 68 | 22% | 14.96 | 44% | 1.370* | 91,575 |
| 🇮🇹 Italy | High taxation + large state | 59 | 15% | 8.85 | 43% | 1.162* | 131,258 |
| 🇬🇧 UK | Medium-high mixed model | 69 | 19% | 13.11 | 36% | 1.137* | 86,755 |
| 🇨🇦 Canada | Moderate | 41 | 21% | 8.61 | 35% | 0.657* | 76,313 |
* Estimated state burden scaled from German reference data.
Source: OECD Revenue Statistics
By global standards, all seven nations provide a high standard of living relative to much of the world, although the services provided by the state differ significantly between them.
To interpret these figures meaningfully, context is required.
The parameter:
Public Revenue per State Employee = Total State Burden / Number of State Employees
does not measure the competence or productivity of individual state employees.
Instead, it provides an approximate indication of the scale of public financial flow associated with each directly employed state worker.
When viewed this way, the data suggests that the direct salary cost of state employees represents only a fraction of the financial flow managed within modern state systems.
Context and Interpretation
A relatively low public revenue per state employee may reflect:
- Labour-intensive public services
- Large military structures
- Direct state service provision
- Decentralized administration
- Different healthcare structures
Military-heavy nations provide a useful example.
Large military forces require substantial manpower alongside major expenditures for equipment, logistics, maintenance, and procurement. Military salary structures also often remain comparable to, or below, many private-sector technical professions.
France, the UK, and the USA all maintain significant military capabilities and also show relatively lower public revenue per state employee.
Canada provides an interesting contrast. While Canada maintains a smaller military force, it possesses an extremely large landmass combined with a relatively small and widely distributed population. This creates different logistical and public-service demands across the nation.
The USA introduces a different form of structural complexity.
A significant proportion of healthcare, pensions, and insurance systems are privately operated on a profit-generating basis. As a result, substantial financial flows associated with health and retirement exist within the private profit centers rather than appearing directly within state expenditure.
These internal financial flows still serve many of the same end purposes:
- Healthcare provision
- Retirement support
- Risk management
Even if delivered differently, resources are still committed by society toward those objectives.
With fewer mandatory national requirements for healthcare and pension systems, individuals within the USA retain greater direct responsibility for managing their own welfare and associated risks.
In many of the other G7 nations, these risks are balanced more collectively through state-managed systems that average risk across populations and time.
For nations such as Japan, Germany, and Italy, the public financial flow per state employee is already very high relative to average salary cost. This suggests that direct employee salaries alone are unlikely to be the dominant driver of total state expenditure.
In the case of Japan, one likely contributing factor is the nation’s advanced demographic ageing relative to many of the other G7 members. As populations age, increasing portions of national expenditure become associated with:
- Pensions
- Healthcare
- Long-term care
- Social support systems
The result is that increasingly large financial flows must be managed even without proportional increases in direct state employment.
Structural Observation
The purpose of taxation is not simply to raise money, but to transform individual economic activity into shared societal capability.
The same underlying societal functions can therefore be delivered through very different structural arrangements:
- Direct state employment
- Private provision
- Insurance systems
- Outsourcing
- Regional administration
- State-regulated markets
As a result:
Similar outcomes can emerge from very different structures, while similar structures can also produce very different outcomes.
The interpretation of economic metrics therefore depends heavily upon the context, assumptions, and definitions used in the analysis.
This does not make the numbers meaningless. It simply means that:
A metric alone is not reality — it is a selected observation within a defined frame of reference.
📖 Series Roadmap
- Life Support – Defining the System (08.07.2026)
- So You Think This Is About Climate Change? (11.07.2026)
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