Seven surprising facts about tax revenues around the world

New data collated by the OECD compares how governments raise taxes, yielding some notable findings.

31/07/2018
Stressed-tax-kid

Authors

Duncan Lamont, CFA
Head of Strategic Research, Schroders

Taxes are always a hot topic for the individuals and companies who pay them. It is therefore perhaps unsurprising that an attempt by the OECD, an organisation made up of mostly rich nations, to collate and compare taxation in 35 countries will attract some attention.

Here, we pull out some of the most telling facts.

1. Most economies are taxed more now relative to GDP than at any point since 1990

Around 80% of the countries covered have experienced an increase in taxation between 1990 and 2016. Higher tax income across all major sectors, particularly VAT and corporation tax, has pushed the ratio of tax to GDP to a record high of 34%.

The reasons for this are complex, particularly the sharp rise since the financial crisis of 2008. It isn’t necessarily a result of indebted governments increasing tax rates to raise more money, as we explain below.

Tax-pct-of-gdp-oecd-avg-CS00307

Source: OECD Global Revenue Statistics Database, Schroders. OECD average is for 2015 data.

2. This overall rise in taxation has happened despite corporate tax rates falling by around half since the 1980s

One high-profile story has been the “rates war” on corporation tax. Countries have battled to offer the lowest rates in an attempt to attract companies. To help show that, we’ve pulled in a chart from a recent academic paper. It shows how the average corporate tax rate has experienced a savage decline over an extended period of time. It’s also worth noting that higher pre-tax profits have increased overall corporation tax revenues despite lower tax rates.

World-avg-corp-tax-CS00307

3. Corporation taxes are a fairly insignificant source of government revenues

contribution-total-tax-rev-oecd-avg-CS00307

Source: OECD Global Revenue Statistics Database, Schroders. OECD average is for 2015 data.

This is nothing new. Despite the decline in corporate tax rates, corporate taxes have not fallen at all relative to GDP since 1990. Given its low contribution to overall revenues, cutting corporation tax is a far less directly costly move than cutting income tax, despite growing public opposition. Governments also hope that cutting tax rates for companies encourages them to base or expand their presence in a country, employing people who pay income tax and who buy taxed goods and services.

4. Value-added tax (VAT) and other goods and services taxes (e.g. duties) contribute a far higher amount to the coffers

Good-and-sales-tax-income-CS00307

5. The income tax burden, relative to GDP, hasn’t increased in most countries since 2000. Tax hikes have been slipped in by the back door. 

Less attention-grabbing areas such as VAT and social security contributions have been the major areas the burden has been felt.

OECD-countries-increase-reliance-tax-CS00307

Source: OECD Global Revenue Statistics Database, Schroders. All data is to end 2016 other than Australia, Greece, Japan, Mexico and OECD average, which are 2015.

6. The UK consumer’s obsession with house prices is matched by the government’s desire to extract revenues from the sector

Tax revenues derived from property are higher in the UK, as a percentage of GDP, than any other major economy, more than double the OECD average.

Tax-PCT-GDP-CS00307

Source: OECD Global Revenue Statistics Database, Schroders. All data is to end 2016 other than Australia, Japan and OECD average, which are 2015.

7. Greece and Italy are much criticised but generate more in taxes, as a percentage of GDP, than most other major economies. 

Raising the tax burden much further is not a realistic option. Fiscal health can only be improved by spending cuts (such as a reduction in their very generous benefits) and/or efforts to raise productivity, such as relaxation of employment law. The Italian political climate in particular makes neither an easy option, at least in the near term.

Tax-revenues-PCT-GDP-CS00307

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Authors

Duncan Lamont, CFA
Head of Strategic Research, Schroders

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