Tax burdens and revenue collection in advanced economies are reaching record levels not seen since before the global financial crisis, but the tax mix continues varying widely across countries, according to new OECD research.
Revenue Statistics 2014 shows that the average tax burden in OECD countries increased by 0.4 percentage points in 2013, to 34.1%, compared with 33.7% in 2012 and 33.3% in 2011.
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The tax burden is the ratio of total tax revenues to GDP.
Historically, tax-to-GDP ratios rose through the 1990s, to a peak OECD average of 34.3% in 2000. They fell back slightly between 2001 and 2004, but then rose again between 2005 and 2007 before falling back following the crisis.
In 2013, the tax burden rose in 21 of the 30 countries for which data is available, and fell in the remaining 9. The number of countries with increasing and decreasing ratios was the same as that seen in 2012, indicating a continuing trend toward higher revenues.
The largest increases in 2013 occurred in Portugal, Turkey, Slovak Republic, Denmark and Finland. The largest falls were in Norway, Chile and New Zealand.
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By GlobalDataDetailed Country Notes provide further data on national tax burdens and the composition of the tax mix in OECD countries.
A number of factors are behind the rise in tax ratios between 2012 and 2013. About half of the increase is attributed to personal and corporate income taxes, which are typically designed so that revenues rise faster than GDP during periods of economic recovery. Discretionary tax changes have also played a role, as many countries raised tax rates and/or broadened tax bases.
The new data also show rising revenues in central, state and regional governments between 2011 and 2013, following declines over most of the 2008-10 period. The average tax ratio for local governments increased slightly but steadily since 2007.
Other Key Findings:
- Denmark has the highest tax-to-GDP ratio among OECD countries (48.6% in 2013), followed by France (45%) and Belgium (44.6%).
- Mexico (19.7% in 2013) and Chile (20.2%) have the lowest tax-to-GDP ratios among OECD countries, followed by Korea (24.3%), and the United States (25.4%).
- The tax burden remains more than 3 percentage points below the 2007 (pre-recession) levels in three countries – Iceland, Israel and Spain. The biggest fall has been in Israel – from 34.7% in 2007 to 30.5% of GDP in 2013.
- The tax burden in Turkey increased from 24.1% to 29.3% between 2007 and 2013. Three other countries – Finland, France and Greece – showed increases of more than 2.5 percentage points over the same period.
- Revenues from personal and corporate income taxes are now recovering, after the sharp falls of 2008 and 2009. However, the 33.6% share of these taxes in total revenues seen in 2012 – the last year for which full data is available – remains below the 36% share in 2007. The share of social security contributions has increased by 1.6 percentage points, to an average 26.2% of total revenue.
Consumption Tax Trends
The OECD has advocated shifting the tax mix away from more distortive taxes on labour and corporate income in many countries towards more ‘growth friendly’ sources of revenue, like consumption taxes and property taxes. VAT is an important source of revenue for OECD countries, representing on average approximately 20% of total tax revenues.
Consumption Tax Trends 2014 highlights the strong increase in standard VAT rates over the past five years: the OECD average standard VAT rate reached an all-time high of 19.1% in January 2014, up from 17.6% in January 2009.
Over the 2009-14 period, 21 countries raised their standard VAT rate at least once. The 21 OECD countries that are members of the European Union have an average standard VAT rate of 21.7%, which is significantly above the OECD average.
Country Notes provide further data on national consumption tax trends and the effectiveness of VAT/GST collection in OECD countries.
While most OECD countries have increased their standard VAT rates, only a few have taken measures to broaden their VAT base. Many OECD countries continue to use reduced VAT rates and exemptions mainly for equity and social objectives.
However, broadening the VAT base by limiting the use of reduced rates and exemptions may allow countries to increase revenue without raising the standard rate, and at the same time reduce compliance and administrative costs. A reduction of the standard rate may even be possible by broadening the tax base.
The Distributional Effects of Consumption Taxes in OECD Countries
The Distributional Effects of Consumption Taxes in OECD Countries shows that many of these reduced VAT rates actually benefit higher income households more than lower income households. This is particularly the case for reduced VAT rates on restaurant meals, hotel rooms and cultural goods, like books, theatre and cinema tickets.
This study, carried out in conjunction with the Korea Institute of Public Finance, suggests that a better way to achieve equity and social objectives would be to remove many of these reduced rates and replace them with better targeted relief measures, such as income-tested benefits and tax credits.
