OECD Tax Burdens On The Rise

by Ulrika Lomas, Tax-News.com, Brussels

17 October 2008

The OECD’s latest Annual Report of Revenue Statistics has shown that Denmark possesses the highest tax-to-GDP ratio in 2007, at 48.9%, followed by Sweden with the second highest at 48.2%.

At the other end of the spectrum Mexico and Turkey remain the lowest-taxing countries.

Overall, the average tax burden in the 30 OECD countries, calculated as a proportion of gross domestic product (GDP), is close to its historic peak of 36.1% in 2000. In 2006, the latest year for which complete figures are available, the tax-to-GDP ratio was 35.9%, up from 35.8% in 2005 and 35.2% in 2004.

The Revenue Statistics report presents detailed and internationally comparable tax data in a common format for all OECD countries from 1965 onwards. The latest figures show a continued rise in revenues from corporate income taxes to an average 3.9% of GDP in 2006, compared with 3.7% in 2005 and 3.6% in 2000. In 1975, revenues from corporate income taxes amounted to only 2.2% of GDP.

Despite increases in average tax levels globally many governments have dramatically lowered their estimates for revenue projections in light of the global financial crisis. The OECD Secretary-General Mr Gurría commented along with the report that “the current economic slowdown is going to put additional pressure on government budgets.”

Tax-to-GDP ratios are a reflection of government choices in fiscal policy, which can play a redistributive role that evens out inequalities. Despite Denmark’s high tax-to-GDP burden, surveys regularly report a high level of contentment among Danish citizens with the nation’s egalitarian society. By contrast, Mexico’s low tax-to-GDP ratio reflects a lack of redistributive policies and hinders the government’s ability to invest in the physical and social infrastructure that is required for a sustainable growth path.

In 2007, tax burdens rose in 11 of the 26 countries for which provisional figures are available and fell in 13 others, suggesting that the average ratio for the 30 OECD countries is likely to remain at recent high levels.

• The biggest year-to-year increases were in Hungary, from 37.1% in 2006 to 39.3% in 2007, followed by Korea from 26.8% to 28.7% and Italy, from 42.1% to 43.3%.
• The biggest drop was in the Netherlands, from an estimated 39.3% to an estimated 38.0%.
• Since 1965, the contribution to total government revenues of corporate income taxes increased from 9% to 11% and that of social security charges has jumped from 18% to 25%. The share of personal income taxes, by contrast, has fallen back to below 1965 levels after rising in the 1970s and 1980s.

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