OECD Says Governments May Have Taken Less Tax Last Year

by Ulrika Lomas, Tax-News.com, Brussels

11 October 2002

The share of gross domestic product taken by governments in the form of tax revenues has risen ineluctably over the last 100 years, but last year may have seen a rare pull-back in the trend, said the Organization for Economic Cooperation and Development on Thursday.

Provisional figures in the latest edition of the OECD's Revenue Statistics show that the average tax-to-GDP ratio for the 25 OECD countries for which 2001 figures are available fell by one tenth of a percentage point last year to 37.3%.

Between 1995 and 2000, the average tax-to-GDP ratio for all 30 OECD countries rose from 36.1% to 37.4%. But these figures mask very significant differences as between countries, with Japan collecting 27.1% in 2000 as against a government share of nearly 60% for some EU member states.

Almost as constant as the increase in tax take is the flow of tax-cutting promises from politicians; it's a puzzle why electorates continue to believe them.

In a welcome departure from its usual barrage of propaganda aimed at forcing low-taxing countries to pay more tax, the OECD said: "These estimates suggest that the increase in the average ratio of total tax revenues to GDP may have flattened out."

Part of the explanation for the turnaorund, says the OECD, may lay in the economic cycle. Rapid economic growth, which was seen from 1995 to 2000, increases company profits and lifts individual incomes into higher tax brackets. The recent slowdown in the world economy, by reducing that effect, is likely to result in some of the tax cuts offered recently by EU countries having their expected result of reducing tax-to-GDP ratios.

A special feature in this year's edition of Revenue Statistics highlights the large differences in compulsory social security contributions across OECD countries, in terms of ratios to GDP and share of tax revenues. Among other things, says the OECD, this shows that:

• Continental European countries have relatively high social security contributions because of their extensive social safety nets and population ageing; but
• At the other end of the spectrum, Ireland, Korea, Canada, Britain and the U.S. have relatively low contributions because they finance a significant part of their social benefits from other taxes and because the scope of their social security programmes tends to be smaller.

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