OECD Notes Fall In Global Tax Burden

by Ulrika Lomas, Tax-News.com, Brussels

15 December 2010

The Organization for Economic Cooperation and Development (OECD) has noted a decline in revenues during 2009 among its member countries, in cash terms, which it said was driven by declining economic activity, and tax cuts introduced to cushion countries’ economies from the downturn.

According to the OECD’s Revenue Statistics publication for 2010, tax revenues as a share of Gross Domestic Product (GDP) - the tax burden – also trended downward across OECD countries to the lowest level since the early 1990s. In 2007 the tax burden was 35.4%, dropping to 34.8% in 2008, and to 33.7% in 2009. The highest figure on record was 35.5% in the year 2000.

The major findings of the report, in terms of tax trends, are:

• 28 OECD countries provided provisional figures for 2009. Tax to GDP ratios fell compared with 2008 in 17 countries and increased in 7. The overall average tax to GDP ratio decline is more than one percentage point from 2008 to 2009 - to below 34%; this is the lowest average tax burden since the early 1990s.
• Tax to GDP ratios have fallen for two consecutive years in almost half of the countries and for three consecutive years in Canada, France, Iceland, Ireland, New Zealand, Norway and the United Kingdom.
• Tax revenues fell in cash terms in 2009 in all countries except Luxembourg, Switzerland and Turkey.

The report confirms that Denmark has the highest tax burden, closely followed by Sweden. The Danish tax burden was 48.2% in 2009, followed by Sweden at 46.4%. Austria, Belgium, Finland, France, Italy and Norway also have tax burdens over 40%.

Mexico, with a 17.5% tax to GDP ratio has the lowest tax burden among OECD member countries, followed by Chile (18.2%), the US (24.0%), and Turkey (24.6%).

In terms of marked changes in countries’ tax burdens, the report noted that the tax burden declined by more than 5% between 2007 and 2009 in three member countries: Spain, from 37.3% to 30.7%; Iceland, from 40.6% to 34.1%; and Chile, from 24% to 18.2%. Meanwhile, Greece, Ireland, New Zealand and the United States showed declines of 3-4% from 2007 to 2009.

The largest year-on-year increases in terms of tax to GDP ratio in 2009 were in Luxembourg from 35.5% in 2008 to 37.5% in 2009 and Switzerland from 29.1% to 30.3%.

Taking countries’ personal and corporate income tax burdens in isolation from other taxes, OECD member countries’ income tax burden declined to 12.5% in 2008, compared with 12.9% in 2007.

Other salient findings of the report include:

• Social security contributions to total government revenues in OECD countries increased from 18% in 1965, to 25% in 2008, while corporate income taxes rose from 9% to 10%.
• The share of personal income taxes was 25% in 2008, down nominally on the 26% contribution recorded in 1965.
• The share of taxes on consumption fell from 36% in 1965 to 30% in 2008. But the mix of taxes on goods and services has also fundamentally changed. General consumption taxes (e.g. VAT) produced 20% of total revenue in 2007 compared with 12% in the 1960s. However this has been accompanied by a larger fall in other specific consumption taxes, from 24% to 10% over the same period.
• The contribution of property taxes to countries’ coffers also fell from 8% in 1965 to 5% by 2008.

Lastly, the report finds that the revenue contribution of eco taxes has fallen, and despite political consensus on tackling climate change, so-called ‘green taxes’ contribute less in terms of Gross Domestic Product than 20 years ago. The report found that most governments are focusing new taxes on pollution, mainly from road transportation.

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