OECD Reports Highest Ever Tax Take By Its Members

Jason Gorringe, Tax-news.com, London

06 November 2000

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Every year the OECD reports on the level of taxes paid in its 29 member countries - and every year the percentage goes up. What is worrying OECD Finance Ministers then to the extent that they have needed to attack the world of offshore for 'unfair tax competition'?

The OECD's Revenue Statistics has been published each year since 1972 and the latest issue shows that in 1998 governments collected 37.2% of their aggregate GDPs in the form of tax - the highest figure since 1965 when the OECD began to collect this data. There is a lot of variation in the figures, though: the lowest score, of 16%, came from Mexico, while the EU scored 41.3% with some individual countries taking over 45% of GDP. In 1970 the tax take was 29% of GDP.

There have been some interesting changes in the mix of taxes collected, with income taxes and property taxes tending to drop, while expenditure taxes tend to rise. This may reflect economic orthodoxy, which prefers expenditure taxes as being more efficient, more transparent and cheaper to collect.

Economic orthodoxy also says that a higher tax burden should restrain growth, but it has to be said that there has been little evidence for this in recent years. There are plenty of other reasons to account for the laggardly performance of the EU compared with the US.

What is sure is that the OECD's members don't need any help in learning how to scalp their citizens. The OECD is advertising on its web-site for a Head of Tax Competition (doublespeak for reducing it) - it could save money by either scrapping that job or sacking its statisticians - it doesn't seem to need both.

Here is the OECD's Press Release announcing the 1998 figures:

A World of Taxes

Every year, the average tax rate in the OECD has increased. Also, the ‘mix’ of national tax revenues is gradually changing. OECD Revenue Statistics - published annually since 1972 - provides up-to-date figures on how much revenues the 29 OECD governments raise, and how they go about it.

In 1998, OECD governments collected almost US$ 8 trillion in taxes: the equivalent of 37.2 per cent of the aggregate GDP of their economies and the highest figure recorded since revenue data began being collected by the OECD (1965). Currently, the countries with the highest tax/GDP ratio -- over 45 per cent of GDP -- are Sweden, Denmark Finland, Belgium, France and Luxembourg,. At the opposite end of the spectrum, Mexico’s total tax revenues represent less than 16 per cent of its GDP. Five countries have tax levels in the 20-30 per cent of GDP range: Korea, Japan, Australia, the United States (1997) and Turkey (see Graph 1). http://www.oecd.org/daf/fa/stats/
graph1_taxing_wages.pdf

Tax levels are up

There has been a continuing trend towards higher tax levels: from 29 per cent of GDP in 1970, to 33 per cent in 1980, to 36 per cent in 1990 and more than 37 per cent in 1998. Most countries are affected, with the exception of Belgium, Germany, Ireland, Luxembourg, the Netherlands, Mexico, Norway and United Kingdom, where the tax level measured as a percentage of GDP has fallen (somewhat) since 1985.

The Tax mix changes

While, on average, tax levels have been rising, the share of main taxes in total revenues (the tax ‘mix’) has also changed (see Table 1 and Graph 2). http://www.oecd.org/daf/fa/stats/
table1&graph2_taxing_wages.pdf Personal income taxes remain the largest single source of revenue, but for OECD countries as a whole their share has shrunk from 31 per cent of total taxes in the early 1980s to only 27 per cent today. For over two decades the share of the corporate income tax has remained some 8 per cent of total taxes. As the share of corporate profits in GDP of the OECD area strongly increased after the mid 1980s, effective tax burdens on profits fell. This trend reflects in part an increasing erosion of the tax base as a consequence of widespread tax planning (including the use of ‘tax havens’) and intense tax competition among industrialised countries.

The fastest growing revenue sources have been general consumption taxes and contributions to finance social security. General consumption taxes, especially value-added tax (VAT), now produce 18 per cent of total tax revenue, compared with only 12 per cent in the mid 1960s. The increase in social security contributions -- usually earmarked to pay for benefits -- probably mirrors the pressure on benefit spending from higher unemployment, an ageing population and increased expenditure on health-related programmes. Over the 1965-1997 period the share of specific consumption taxes, such as excises and import duties, was halved. Rates of taxes on imported goods were strongly reduced everywhere, reflecting the global trend to remove trade barriers. Also, over the same period, the share of property taxes in the tax mix has markedly dropped, from 8 to 51/2 per cent of total taxes, possibly as a result of voter resistance against such highly ‘visible’ taxes.

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