THE TAX POLICY LANDSCAPE SIX YEARS AFTER THE CRISIS: A REVIEW OF RECENT TAX POLICY DEVELOPMENTS Bert Brys, Ph.D. Senior Tax Economist Centre for Tax Policy and Administration
Tax revenue developments 36 Average OECD total tax revenue as a percentage of GDP 2000-2012 35 35.2% 35.0% 34.6% 34 34.3% 33.6% 33 2
Tax revenue developments Change in tax revenues as a percentage of GDP, 2007-2012 4 3 2 1 0-1 -2-3 -4-5 -6 3
Tax revenue developments 5 Change in tax revenues as a percentage of GDP, 2007-2012 2009-2012 2007-2009 4 3 2 1 0-1 -2-3 -4-5 -6-7 -8 4
Tax revenue developments Tax-to-GDP ratio Change in the tax-to-gdp ratio 2007 2009 2012 2007-2009 2009-2012 2007-2012 Personal income taxes Corporate income taxes Social security contributions 9.0 8.7 8.7-0.3 0.0-0.3 3.7 2.8 3.0-0.9 0.2-0.7 9.2 9.6 9.6 0.4 0.0 0.4 Property taxes 2.0 1.9 1.9-0.1 0.0-0.1 Consumption taxes 11.1 10.8 11.2-0.3 0.4 0.1 Other taxes 1.0 0.9 1.0-0.1 0.1 0.0 Total tax revenues 36.0 34.6 35.4-1.4 0.8-0.6 5
Tax revenue developments On average, tax-to-gdp is still below the pre-crisis level CIT revenues have proven to be the most cyclical of major tax categories Consumption taxes were used in many countries to raise revenues as part of the fiscal consolidation effort 6
Corporate income taxes and business investment The CIT regime is often seen as the most crucial tax for business investment There has thus been downward pressure on CIT rates notwithstanding the need for fiscal consolidation However, the decrease in the average CIT rate slowed down significantly after the crisis compared to the pre-crisis period 7
Corporate income taxes and business investment OECD average statutory CIT rate, 1990-2014 50% 40% 30% 20% 10% 0% 8
Corporate income taxes and business investment Change in combined statutory CIT rates, 2007-2014 2014 2007 50% 40% 30% 20% 10% 0% 9
Limitations to interest payments Traditional thin capitalisation and arm s length rules apply in many countries Recently, several countries have implemented new rules: Limitation of interest deductibility up to a certain percentage of EBITDA (Germany, Italy, Portugal) Sweden might be in the process to move towards a CBIT Limitation of deductibility of intra-group interest (Japan, Norway, Sweden) 10
Taxes on capital income (savings and investment income) While CIT rates have continued to fall since the onset of the crisis, tax rates on personal capital income have increased Overall, more countries increased dividend taxation than decreased it CIT rates are viewed as encouraging investment, with taxes on personal capital income playing a role only for small firms Reducing CIT rates and increasing taxes on personal capital income may thus be viewed as an attempt to strike a balance between equity and incentives 11
Taxes on capital income (savings and investment income) OECD average tax burden (CIT+PIT) on dividends, 2000-2014 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 12
Taxes on capital income (savings and investment income) Change in tax burden (CIT+PIT) on dividends, 2007-2014 2014 2007 70% 60% 50% 40% 30% 20% 10% 0% 13
Taxes on employment On average, tax burden on labour decreased before 2008 and has increased since then. Average tax rates have generally not changed much around the middle of the income distribution Many countries scaled down tax incentives as part of their fiscal consolidation efforts but recently, targeted tax measures have become again more popular 14
Top personal income tax rates Developments in top PIT rates were more pronounced in comparison to changes in tax rates for middle and lower income levels. While the increases in top PIT rates since 2008 have been relatively modest, this does reverse the general downward trend in top PIT rates that started in the 1980s and lasted until the mid-2000s Concerns about equity are clearly an important driver of increases in top PIT rates. 15
Taxes on employment Total average tax wedges at different income levels (as a percentage of labour costs) and the top PIT rate (%), OECD average, 2000-2013 50 top PIT rate 167% AW 100% AW 67% AW 45 40 35 30 25 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 16
Top personal income tax rates Change in top PIT rates, 2007-2013 2013 2007 70 60 50 40 30 20 10 0 17
Tax reliefs/ expenditures Many countries scaled down tax incentives as part of their fiscal consolidation efforts following the crisis There have been modest steps taken to reduce tax expenditures that disproportionately benefit highincome individuals However, targeted tax measures have become more popular recently Many countries introduced or announced targeted tax reductions to support research and development, investment, employment of vulnerable groups or consumption of low-income households. 18
Property taxation Property prices fluctuate over the economic cycle & the number of transactions dropped significantly, which is reflected in fluctuations in property transaction taxes. By contrast, revenues from recurrent taxes on immovable property have been much less cyclical Despite that, only a few countries have sought to raise significant additional revenues from recurrent taxes on immovable property as part of their fiscal consolidation efforts. 19
Consumption taxes VAT has played a significant part in fiscal consolidation in many countries Countries increased standard tax rates, but some have also increased reduced VAT rates However, more recently, some countries have again lowered some reduced rates or introduced new reduced rates 20
Consumption taxes OECD average standard VAT/GST rate, 2000-2014 20 18 16 14 12 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 21
Consumption taxes Change in standard VAT rates, 2007-2014 2014 2007 30 25 20 15 10 5 0 22
Excise duties One of the most dominant trends the recent years has been the increase in excise duties, namely on alcohol and tobacco However, many of these increases relate to adjustments made to keep pace with inflation and the revenues as a percentage of GDP did not change much on average despite the compelling arguments for increased use of environmentally related taxes 23
Excise duties Specific consumption taxes are used by countries to raise revenues and internalise externalities at the same time Taxes on following items has been introduced Fat Sugary drinks Food high in salt and sugar Proper design is important, especially in small open economies 24
Financial stability and financial sector taxation Taxation of financial transactions and other taxes on the financial sector have been more common After the crisis, several countries have introduced some form of bank levy or stability fee scheme and/or raised tax rates of existing financial sector taxes 25
Bert BRYS, Ph.D. Senior Tax Economist Tax Policy and Statistics Division Centre for Tax Policy and Administration 2, rue André Pascal - 75775 Paris Cedex 16 Tel: +33 1 45 24 15 97 Fax: +33 1 44 30 63 51 Bert.Brys@oecd.org www.oecd.org/tax 26
ANNEX Changes in tax revenues for different tax categories 27
Tax revenue developments: CIT Change in CIT revenues as a percentage of GDP, 2007-2012 1 0-1 -2-3 28
Tax revenue developments: CIT 2 Change in CIT revenues as a percentage of GDP, 2007-2012 2009-2012 2007-2009 1 0-1 -2-3 29
Tax revenue developments: PIT Change in PIT revenues as a percentage of GDP, 2007-2012 2 1 0-1 -2-3 30
Tax revenue developments: PIT 3 Change in PIT revenues as a percentage of GDP, 2007-2012 2009-2012 2007-2009 2 1 0-1 -2-3 31
Tax revenue developments: SSC Change in SSC revenues as a percentage of GDP, 2007-2012 2 1 0-1 -2-3 32
Tax revenue developments: SSC 3 Change in SSC revenues as a percentage of GDP, 2007-2012 2009-2012 2007-2009 2 1 0-1 -2-3 33
Tax revenue developments: Property Change in revenues of property taxes as a percentage of GDP, 2007-012 0.5 0-0.5-1 -1.5 34
Tax revenue developments: Property 1 Change in revenues of property taxes as a percentage of GDP, 2007-012 2009-2012 2007-2009 0.5 0-0.5-1 -1.5 35
Tax revenue developments: Consumption Change in revenues of general consumption taxes as a percentage of GDP, 2007-012 2 1 0-1 -2-3 36
Tax revenue developments: Consumption 2 Change in revenues of general consumption taxes as a percentage of GDP, 2007-012 2009-2012 2007-2009 1 0-1 -2-3 37
Tax revenue developments: Excise duties Change in revenues of specific consumption taxes as a percentage of GDP, 2007-012 2 1 0-1 38
Tax revenue developments: Excise duties 2 Change in revenues of specific consumption taxes as a percentage of GDP, 2007-012 2009-2012 2007-2009 1 0-1 -2 39