OECD Report Shows Tax Burdens Falling in Many OECD Countries

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1 OECD Centres Germany Berlin (49-30) Japan Tokyo (81-3) Mexico Mexico (52-55) United States Washington (1-202) AUSTRALIA AUSTRIA BELGIUM CANADA CZECH REPUBLIC DENMARK FINLAND FRANCE GERMANY GREECE HUNGARY ICELAND IRELAND ITALY JAPAN KOREA LUXEMBOURG MEXICO NETHERLANDS NEW ZEALAND NORWAY POLAND PORTUGAL SLOVAK REPUBLIC SPAIN SWEDEN SWITZERLAND TURKEY UNITED KINGDOM UNITED STATES PAC/COM/PUB(2002)15 Paris, 10 October 2002 OECD Report Shows Tax Burdens Falling in Many OECD Countries Tax burdens as measured by the ratio of tax to GDP fell in fifteen OECD countries between 2000 and 2001, suggesting a break in a trend of continuous increases in the OECD average tax-to-gdp ratio during the previous five years. Provisional figures in the latest edition of the OECD s Revenue Statistics show that the average taxto-gdp ratio for the 25 OECD countries for which 2001 figures are available fell by one tenth of a percentage point last year. Between 1995 and 2000, the average tax-to-gdp ratio for all 30 OECD countries rose from 36.1% to 37.4% (see Table A). Figures for 2001 are still not available for five OECD countries. Steady growth in OECD tax-to-gdp ratios over the preceding five years, despite widespread cuts in tax rates, illustrates the complex factors that determine tax burdens. Part of the explanation for the rise lay in rapid economic growth, which increased company profits and lifted individual incomes into higher tax brackets. This is evidenced by an increase in the OECD average ratio of taxes on incomes and profits as a percentage of GDP from 12.8% in 1995 to 13.6% in 2000 (see Table B). The recent slowdown in the world economy, by reducing that effect, is likely to result in some of the tax cuts having their expected result of reducing tax-to-gdp ratios. However, the enormous variety of country experiences shown in the report s tables illustrates that there is no single explanation for changing tax burdens. Some conflicting trends include: A very wide range of changes to tax-to-gdp ratios between 2000 and 2001 among the countries for which figures are available. While Norway s ratio increased by 4.6% due in part to volatile revenues from oil, for example, the Slovak Republic experienced a decrease of 2.7 percentage points. Other factors beside income tax revenues also play a role. Korea s tax-to-gdp ratio rose because of higher revenues from consumption taxes, while Turkey s rose due to higher revenues from social security contributions. In addition, the value of tax-to-gdp ratios as a basis for comparison between countries is limited by differences in the mix of tax reliefs (which reduce the tax-gdp ratio) and cash benefits (which do not) used to pursue social objectives such as assisting families with children. Also, countries differ in the extent to which they tax government-provided social benefits, and so increase their tax-to-gdp ratio without adding to the tax burden on economic activities. JT OECD Media Relations General Inquiries: Tel. (33) Fax. (33) /94 37 Research & Documentation: Tel. (33) / news.contact@oecd.org Organisation for Economic Co-operation and Development, 2 rue André-Pascal, Paris Cedex 16, France Tel. (33) Fax. (33)

2 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. (see Table C). Among other things, this shows that: Continental European countries have relatively high social security contributions because of their extensive social safety nets and population ageing. 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. Denmark combines extensive social benefits with low social security contributions, raising much of the necessary finance through other taxes. Australia and New Zealand levy no social security contributions, as they finance social benefits entirely through other taxes. Journalists may obtain this report from the OECD s media protected website ( or from the OECD Media Relations Division (request by fax or news.contact@oecd.org). For futher information and comment, please contact Christopher Heady, OECD s Centre for Tax Policy and Administration (tel. [33] or christopher.heady@oecd.org) Revenue Statistics pages, OECD, Paris ISBN ( ). 2

3 Table A. Total tax revenue as percentage of GDP 3URYLVLRQDO Canada Mexico United States n.a. Australia n.a. Japan n.a. Korea New Zealand Austria Belgium Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Luxembourg Netherlands Norway Poland n.a. Portugal n.a. Slovak Republic Spain Sweden Switzerland Turkey United Kingdom QZHLJKWHG DYHUDJH OECD Total OECD America OECD Pacific OECD Europe EU Unified Germany beginning in The figures in the table match those in the Revenue Statistics. After the publication went to press in July 2002, the Swedish authorities provided updated information about their tax revenues for 2000 and The updated information implies that total tax revenues as percentage of GDP was 53.6 in 2000 and 50.8 in

4 Table B. Taxes on income and profits as percentage of GDP Provisional Canada Mexico United States n.a. Australia n.a. Japan n.a. Korea New Zealand Austria Belgium Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Luxembourg Netherlands Norway Poland n.a. Portugal n.a. Slovak Republic Spain Sweden Switzerland Turkey United Kingdom Unweighted average: OECD Total OECD America OECD Pacific OECD Europe EU Unified Germany beginning in The figures in the table match those in the Revenue Statistics. After the publication went to press in July 2002, the Swedish authorities provided updated information about their tax revenues for 2000 and The updated information implies that taxes on income and profits as percentage of GDP was 22.7 in 2000 and 19.8 in

5 Table C: Social security contributions, 2000 a % of GDP % of total tax revenues Czech Republic France Netherlands Sweden E Austria Germany Slovak Republic Belgium Spain Switzerland Finland Italy Hungary Greece Luxembourg Poland Japan Norway Portugal United States United Kingdom Turkey Canada Korea Ireland Mexico Iceland Denmark a) The 28 countries included in this table are ranked by decreasing ratio of social security contributions to GDP. Australia and New Zealand are not included in the table because they levy no social security contributions. b) The figures in the table match those in the Revenue Statistics. After the publication went to press in July 2002, the Swedish authorities provided updated information about their tax revenues for 2000 and The updated information implies that, in 2000 social security contributions were 15.0% of GDP and 28.1% of total tax revenues. 5