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OECD Warns Of 'Brexit Tax'

by Robert Lee,, London

28 April 2016

The Organisation for Economic Cooperation and Development (OECD) has warned that if the UK votes to leave the European Union (EU) on June 23 it will be paying a "Brexit tax" for years to come.

The OECD has released "The Economic Consequences of Brexit: A Taxing Decision," in which it argued that leaving the EU would result in a "major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries." It further claimed that "Brexit would be akin to a tax on gross domestic product (GDP), imposing a persistent and rising cost on the economy that would not be incurred if the UK remained in the EU."

The OECD calculated that, by 2020, GDP would be more than three percent smaller than it would be with continued EU membership. This is equivalent to a cost per household of GBP2,200 (USD3,214) in today's prices. By 2030, GDP would be over five percent lower than otherwise, putting the cost per household at GBP3,200, it said.

Commenting on the report, OECD Secretary-General Angel Gurría, said: "Brexit would, rather like a tax, hit the wellbeing and the pockets of UK citizens. Unlike most taxes, however, this one will not finance the provision of public services or close the fiscal gap. The 'Brexit tax' would be a pure deadweight loss, a cost incurred with no economic benefit. And this tax would not be a one-off levy. Britons would be paying it for many years."

Gurría added: "While no one knows precisely what the costs would be, what is striking about our estimates and those produced by most others is that all the numbers under a Brexit case are negative. The best outcome under Brexit is still worse than remaining an EU member, while the worst outcomes are very bad indeed."

"The Brexit tax just gets bigger. We see no economic upside for the UK whatsoever. The only question is where, on the spectrum of possible losses, the outcome winds up."

"The bigger question is why spend so much wealth, well-being, time, energy, and talent in order to compensate the damage of a bad decision when you can simply avoid taking such decisions. Why spend so much effort trying to recover the benefits of membership in a club you don't have to leave?"

Earlier this month, UK Chancellor George Osborne published Treasury analysis that put the cost of Brexit at "the equivalent of eight pence on the basic rate of income tax." According to the Treasury, if the UK leaves the EU, there would be a long-term reduction in GDP of around four percent a year. Osborne cautioned that this would in turn "hit our tax receipts as people and businesses earn less."

TAGS: tax | business | gross domestic product (GDP) | Organisation for Economic Co-operation and Development (OECD) | United Kingdom | ministry of finance | European Union (EU) | Europe

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