Structure and development of tax revenues The tax-to-GDP ratio of Estonia (including social security contributions) at 34.2 % in 2010 remained at the level clearly higher than in the pre-crisis years, but represents, however, a reduction of more than 1 percentage point with respect to the previous year. This may reflect partly the economic recovery, which increased tax revenues, but also deliberate tax policy measures, mainly increases of VAT and excise duty rates that took place in 2009 and 2010. Temporary factors, such as the suspension of payments to the second pension pillar, may have also somewhat increased the tax burden with respect to pre-2008 years. The 2010 tax-to-GDP ratio is close to the EU27 average level (35.6 %) and clearly higher than in other Baltic States. As in many other new Member States, the share of indirect taxes in total taxation is relatively high in Estonia (41.7 % in 2010), which is somewhat above the EU average (38.6 %). Social security contributions also form an important proportion of total taxation (38.5 % in 2010, more than seven percentage points above the Union average). The share of direct taxes, 19.9 % in 2010, has fallen by more than ten percentage points since the late 1990s, following reforms that increased the basic allowance and decreased the tax rates on both personal and corporate income. Local governments receive 13.4 % of tax revenues, which is the seventh highest proportion in the EU-27. Since 2004, the funding of local authorities is calculated based on gross income of residents before deductions instead of actual tax revenue, as was the case previously. This implies that the basic exemption and other deductions from taxable income impact only on the central government budget. Central government revenue accounts for 67.9 % of total taxation. Taxation of consumption, labour and capital; environmental taxation Consumption tax revenues in relation to GDP displays an increasing trend from 2004 onwards, with the exception of the crisis year 2008, in which the VAT revenues fell from their trend level. The ITR on consumption shows a similar trend with rapid increases form 2004 onwards, a fall in 2008 and record high levels in 2009 and 2010. The rising trend of the effective taxation of consumption undoubtedly reflects sharp increases in VAT and excise duty rates as a part of the government's strategy to shift the tax burden from labour towards consumption and the environment. At 25.6 % in 2010 the ITR on consumption is the sixth highest in the European Union. The ITR on labour has been declining up to 2008, reflecting the cuts in personal income tax rates and the gradual increase in the basic allowance introduced by the tax reform. Since 2008 the basic allowance and the income tax rate have been kept unchanged, which may have contributed to the rise of ITR on labour in 2009 and 2010. In 2010 the ITR on labour was 37 %; the tenth highest in the European Union, and nearly two percentage points higher than in the previous year. Taxes on capital represent only 6.3 % of total tax revenues, the lowest proportion in the EU-27, in accordance with the very low effective taxation of capital income. The ITR on capital (9.1 %) is among the lowest in the EU, being lower than this only in two other Baltic states, Latvia and Lithuania. Revenue from environmental taxes forms 8.7 % of total taxation in 2010, exceeding the EU average by more than one percentage point. The share of environmental tax revenues displays a steadily rising trend from 1995 onwards, reflecting partly the need to adjust the excise duties up to the EU minimum rates, but also a deliberate policy of the government to finance the cuts of personal income taxes by increases in consumption and environmental taxation.