This chapter describes the latest tax revenue trends, analysing both total tax-to-GDP ratios and tax structures over time and across OECD countries as well as in Argentina, Indonesia and South Africa. The analysis covers tax revenue trends until 2018, the last year for which comparable tax revenue data from the OECD Global Revenue Statistics Database is available.
Tax Policy Reforms 2020
OECD and Selected Partner Economies
Tax Policy Reforms
2. Tax revenue trends
Abstract
This chapter describes the latest tax revenue trends, analysing both total tax-to-GDP ratios and tax structures over time and across OECD countries as well as in Argentina, Indonesia and South Africa.1 The analysis covers tax revenue trends until 2018, the last year for which comparable tax revenue data from the OECD Global Revenue Statistics Database (Box 2.1) are available.2 This overview provides useful background to the subsequent discussion on countries’ latest tax reforms (Chapter 3) and partly reflects the effects of past reforms discussed in earlier editions of this annual publication.
Overall, this chapter shows that on average tax revenues reached a plateau in 2018, with almost no increase relative to 2017. This ends the trend of annual increases in the average OECD tax-to-GDP ratio since the global financial crisis in 2008. Over time, countries’ tax-to-GDP ratios have converged closer to the OECD average, showing greater similarity in the level of tax revenues across countries and greater convergence towards an overall higher level of taxation. This chapter also identifies trends in tax structures and shows that, while on average tax levels have generally been rising, the composition of tax revenues on average across countries has remained relatively stable over time.
Trends in tax revenue levels
Tax revenues vary across countries
Tax revenues varied significantly across the countries covered in the report, ranging from just above 10% to more than 45% of GDP in 2018. Consistent with tax revenues in 2017, France was the country with the highest tax-to-GDP ratio in 2018 with tax revenues amounting to 46.1% of its GDP (a slight decrease from 46.2% in 2017) followed by Denmark and Belgium with tax-to-GDP ratios of 44.9%. On the other hand, and consistent with the last ten years of data, the countries with the lowest tax-to-GDP ratios in 2018 were Indonesia, with total tax revenues amounting to 11.9% of its GDP, followed by Mexico (16.1%) and Chile (21.1%). In Chile, however, the majority of social contributions are paid into privately managed funds and are not included in the tax-to-GDP ratio3 (Figure 2.1).
Figure 2.1. Tax revenues as a share of GDP by country in 2018
Note: For Australia, Japan and South Africa, 2017 data is used. Korea has revised its GDP figures and expects a decrease in tax-to-GDP ratios for 2017 and 2018 compared to the figures included in the 2019 edition of OECD Revenue Statistics.
Source: OECD Global Revenue Statistics Database.
Despite the wide range of tax-to-GDP ratios, there is a relatively high concentration of countries with tax-to-GDP ratios around the OECD average. On average across OECD countries, tax revenues amounted to 34.3% of GDP in 2018 (Figure 2.1). Figure 2.2 shows a high concentration of countries that have tax revenues close to that level with 10 countries recording tax revenues between 30% and 35% of GDP and another 10 countries with tax revenues ranging from 35% to 40% of GDP. Spain, the United Kingdom and Poland were the countries closest to the OECD average. A number of countries recorded tax-to-GDP ratios further away from the OECD average: 11 had tax-to-GDP ratios below 30% and eight recorded tax revenues above 40% of GDP.
Figure 2.2. Distribution of tax-to-GDP ratios in 2018
Note: Each + represents the tax-to-GDP ratio of a country in 2018 (2017 for Australia, Japan and South Africa).
Source: OECD Global Revenue Statistics Database, based on "Special feature: Convergence of tax levels and tax structures in OECD countries", in (OECD, 2018[1]).
Box 2.1. The OECD Global Revenue Statistics Database
The Global Revenue Statistics Database provides the world’s largest public source of harmonised tax revenue data, verified by countries and regional partners. Spanning more than 100 countries in all corners of the world, the database provides a rich and accessible resource for policymakers and researchers, based on the internationally recognised OECD standard. It allows comparisons of the tax burden in these countries, measured by the tax-to-GDP ratio, as well as of the tax mix, i.e. the distribution of total tax revenues by the main types of taxes. The database presents tax revenue data in national currency and USD, and also provides information on the share of tax revenues attributed to different levels of government.
Domestic revenues are critical to efforts to fund sustainable development and to implement the Sustainable Development Goals. The database supports these efforts by measuring progress on domestic resource mobilisation, building statistical capability, and providing country-specific indicators as called for in SDG 17, in the Addis Ababa Action Agenda and by more than 55 countries and international organisations in the Addis Tax Initiative.
The database shows that countries have made strong progress toward mobilising domestic financing for development in the 21st century. Tax revenues are now higher as a percentage of GDP and their levels are more evenly distributed across countries than they were at the turn of the century. With few exceptions, the countries that recorded the lowest level of tax revenues in 2000 have increased their revenues the most.
The Global Revenue Statistics Database is updated several times a year with the latest available data from the regional Revenue Statistics publications, which cover African, Asian and Pacific, Latin American and Caribbean and OECD countries.
Access the database here: https://www.oecd.org/tax/tax-policy/global-revenue-statistics-database.htm.
Since 2000, the concentration of countries with high tax-to-GDP ratios has increased, shifting the distribution of countries’ tax revenues to the right (Figure 2.3). Between 2000 and 2018, the number of countries with tax revenues between 35% and 40% of GDP increased from six to ten. On the other hand, the number of countries with tax-to-GDP ratios between 30% and 35% decreased from 15 in 2000 to 11 in 2018. Eight countries had tax revenues above 40% of GDP in both 2000 and 2018.
Figure 2.3. Change in the distribution of tax-to-GDP ratios from 2000 to 2018
Note: The columns for 2018 are calculated with data from 2017 for Australia, Japan and South Africa.
Source: OECD Global Revenue Statistics Database.
As discussed in previous editions of this report, there is a positive correlation between tax-to-GDP ratios and GDP per capita levels. Countries with lower levels of GDP per capita tend to have lower tax-to-GDP ratios (e.g. Argentina, Chile, Indonesia, Mexico, South Africa and Turkey), while high GDP per capita countries tend to have higher tax revenues as a share of their GDP (e.g. Scandinavian countries, Austria, Belgium and France) (Figure 2.4). Outliers include the United States, Switzerland and Ireland, which all have GDP per capita levels far above the average but below average tax-to-GDP ratios. There are also countries with below-average levels of GDP per capita but relatively high tax revenues as a share of GDP (e.g. some Central and Southern European countries like Greece, Hungary and Portugal). Figure 2.4 also shows that levels of tax-to-GDP ratios follow regional patterns.
Figure 2.4. Tax revenues as a share of GDP and GDP per capita in 2018
Note: For Australia, Indonesia, Japan and South Africa, 2017 data is used.
Source: OECD Global Revenue Statistics Database and OECD National Accounts Statistics.
Tax revenues are closely linked to countries’ public expenditure levels. Unsurprisingly, Figure 2.4 shows that there is a close link between countries’ levels of public spending and their tax revenues as a share of GDP. Luxembourg, the Netherlands and Korea are the countries with the smallest relative difference between government spending and tax revenues, respectively collecting taxes amounting to 95.5%, 92.2% and 90.2% of total government spending. The largest relative gap between government spending and tax revenues, on the other hand, was observed in the United States, where the revenue collected from taxes amounts to less than two thirds (64.1%) of total government spending, followed by Israel (77.1%) and Hungary (78.3%). The level of non-tax revenues, also shown in Figure 2.5, helps understand the extent to which the gap between tax revenues and total public expenditure is financed by either other sources of government revenue or debt. In some countries, the gap between tax revenues and public spending is almost fully financed by other sources of government revenues (e.g. Finland and Poland), while in other countries a big portion of the gap between tax revenues and total government spending is financed through debt (e.g. United States). Finally, in some countries, total revenues exceed total public expenditure (e.g. Norway, Korea).
Figure 2.5. Tax revenues, total government revenues and total government spending as a share of GDP in 2018
Note: No data on government spending for Argentina, Chile, Indonesia, Mexico, South Africa and Turkey; 2017 data used for Australia and Japan.
Source: OECD Global Revenue Statistics Database and OECD Economic Outlook 106 Database
Recent tax revenue trends have differed across countries
Between 2017 and 2018, a majority of countries experienced an increase in their tax-to-GDP ratios. 19 of the 35 countries for which 2018 data is available recorded an increase in their tax revenues as a share of GDP (Figure 2.6Figure 2.6). Between 2017 and 2018, Korea saw the largest tax-to-GDP ratio increase (1.52 percentage points) followed by Luxembourg, Chile and Portugal, which all experienced increases of close to 1 percentage point or more. For Korea, the increase in revenues was the largest it has recorded since 2000, when its tax-to-GDP ratio increased by 1.74 percentage points. The large increase in 2018 may partly reflect higher than expected earnings from stronger semiconductor sales.4 Tax revenues in Korea have been increasing for the last five years (2014-2018) and Luxembourg’s tax-to-GDP ratio has seen increases for the last three years (2016-2018) (OECD, 2019[2]). In all of the 19 countries that saw their tax-to-GDP ratio increase, nominal GDP growth and nominal tax revenue growth were positive (Figure 2.7).
Figure 2.6. Percentage point changes in tax-to-GDP ratios by country between 2017 and 2018
Note: No 2018 data for Australia Japan and South Africa
Source: OECD Global Revenue Statistics Database.
On the other hand, 16 countries experienced a decrease in their tax-to-GDP ratios in 2018 relative to 2017. The largest tax revenue fall was recorded by the United States (2.5 percentage points) followed by Hungary (1.6 percentage points) and Israel (1.4 percentage points) (Figure 2.6). The decrease in the United States was due to the tax reforms implemented in the Tax Cuts and Jobs Act, which lowered the corporate tax rate in 2018 and also reduced the tax wedge on labour income via reductions to income tax rates and increases in the standard deduction and the child tax credit. These changes led to a 1.1 percentage point decrease in income taxation. In addition, there was a decrease in property tax revenues of 1.3 percentage points, due to the one-off deemed repatriation tax on foreign earnings under the Tax Cuts and Jobs Act, which increased property tax revenues in 2017. The decrease in Hungary was, among other things, due to a reduction in employers’ SSCs rates from 22% in 2017 to 19.5% in 2018, a reduction of corporate income taxes to 9% in 2017 and a decrease in the VAT rate on selected products in 2018 (OECD, 2019[3]) (OECD, 2018[4]). In Argentina, the reduction in revenues was partly a product of a 2017 tax reform aimed at reducing distortive taxes and the tax wedge for low-income earners (OECD, 2019[5]). In Israel, the fall was driven, in part, by a temporary cut in dividend taxation from 33% to 25% for shareholders of personal service corporations, which encouraged the distribution of past retained earnings and led to a spike in revenues in 2017 and a corresponding drop in 2018 (OECD, 2018[6]). Of the 16 countries that saw their tax-to-GDP ratios decrease, only two (the United States and Israel) had negative tax revenue growth and all had positive GDP growth (Figure 2.7).
Figure 2.7. Changes in nominal tax revenues and nominal GDP between 2017 and 2018
Note: No data for Australia, Japan and South Africa.
Source: OECD and Global Revenue Statistics databases.
Figure 2.8. Percentage point changes in tax-to-GDP ratios by country between 2008 and 2018
Note: Percentage point changes between 2008 and 2017 for Australia, Japan, Mexico and South Africa.
Source: OECD Global Revenue Statistics Database.
Looking at longer-term trends, tax-to-GDP levels are now higher than in 2008 in 28 out of 39 countries (Figure 2.8). The largest increase over this period was recorded in Greece (6.94 percentage points). Seven other countries (the Slovak Republic, Japan, Korea, France, Portugal, Mexico and Luxembourg) experienced tax ratio increases of at least three percentage points over the same period. On the other hand, only 11 countries had lower tax-to-GDP ratios in 2018 than in 2008. The biggest fall was seen in Ireland, where revenues fell by 6.1 percentage points (from 28.5 in 2008 to 22.3 in 2018) largely due to the exceptional increase in GDP in 2015.5 The second largest fall (2.9 percentage points) occurred in Hungary, from 39.5% in 2008 to 36.6% in 2018.
Tax-to-GDP ratios have converged towards higher levels over time
Looking at OECD countries, the average tax-to-GDP ratio has reached a plateau in 2018. For the first time since the financial crisis in 2008 average tax revenues as a share of GDP in the OECD remained effectively unchanged in 2018. The slowing in the growth of the OECD average was predominantly driven by the impact of the significant fall in the tax-to-GDP ratio of the United States as a result of their tax reforms (OECD, 2019[2]). The average tax revenue as a share of GDP in 2018 continued to be the highest ever recorded since the OECD started collecting tax revenue data in 1965 (Figure 2.9).
Figure 2.9. Evolution of the OECD average tax-to-GDP ratio since 1965
Source: OECD Revenue Statistics Database.
The median tax-to-GDP ratio has steadily increased over time and tax revenues as a share of GDP have gradually converged since 1990. Accounting only for countries for which data since 1990 was available, Figure 2.10 shows that countries’ tax-to-GDP ratios have gradually converged towards higher levels. In 2018, the median tax-to-GDP ratio reached a record level of 34.4% compared to 32.4% in 1990. The first and third quartile in 2018 were 28.4% and 40.1% respectively. In 1990, on the other hand, the range between the first and third quartile (25.2% and 39.3% respectively) was larger.
Figure 2.10. Dispersion box plots of tax-to-GDP ratios between 1990 and 2018
Note: Excludes countries for which there was missing data between 1990 and 2000: The Czech Republic, Estonia, Hungary, Indonesia, Israel, Lithuania, Latvia, Poland, Slovakia, and Slovenia. The box plot for 2018 includes data from 2017 for Australia, Japan, and South Africa.
Source: OECD Global Revenue Statistics.
Figure 2.11. Evolution of tax-to-GDP ratios in low-, mid- and high-tax countries since 1990
Note: Low tax-to-GDP ratio countries include all the countries covered in the report that had tax-to-GDP ratios below 25% in 1990 (8 countries); mid tax-to-GDP ratio countries include all the countries that had tax-to-GDP ratios between 25% and 35% in 1990 (12 countries); and high tax-to-GDP ratio countries include all the countries that had tax-to-GDP ratios above 35% in 1990 (18 countries).
Source: OECD Global Revenue Statistics Database.
Trends since the mid-1990s show that countries’ tax-to-GDP ratios have become more similar. This is apparent from the converging patterns between high- mid- and low-tax countries. Figure 2.11 breaks down OECD countries, Argentina, Indonesia and South Africa into three sub-groups: countries with high tax-to-GDP ratios in 1990, countries with mid-levels of tax-to-GDP ratios in 1990, and countries with low revenues as a share of GDP in 1990. It shows that there has been a strong increase in tax revenues on average in the countries with low-tax-to-GDP ratios in 1990, a smaller increase in countries with medium tax-to-GDP ratios, and a small decrease in the average tax to-GDP ratio of countries exhibiting high levels of tax revenues in 1990. Overall, these trends have led to a greater convergence in tax-to-GDP ratios across countries.
Trends in the composition of tax revenues
The composition of tax revenues varies across countries
The cross-country differences in tax structures – or composition of total tax revenues – are significant. As shown in Figure 2.12, income taxes – including both PIT and CIT – are the largest source of tax revenues in 20 countries. In Denmark, Australia, New Zealand, and South Africa, income taxes account for over 50% of total tax revenues. These four countries also collect very little or no SSCs, which partly explains the high share of revenues collected through income taxes. In 11 countries, including Central European countries and large Western European countries, SSCs are the primary source of tax revenues. In the Slovak Republic, Czech Republic, Lithuania, and Slovenia, SSCs account for over 40% of total tax revenues. Lastly, tax revenues from consumption taxes are the primary source of revenues in nine countries. Chile and Argentina collect over 45% of their tax revenues from consumption taxes while personal income taxes only account for 9.7%6 and 7.4% respectively – the lowest shares among the 39 countries analysed.
Figure 2.12. Tax structures by country in 2017
Note: Countries are grouped and ranked by those where income tax revenues (personal and corporate) form the higher share of total tax revenues, followed by those where SSCs, and taxes on goods and services form the highest share.
Source: OECD and Global Revenue Statistics database
As with tax-to-GDP ratios, there tends to be a link between countries’ tax mixes and their GDP per capita levels. Previous editions of this report discussed how more developed countries exhibit higher shares of tax revenues from PIT (OECD, 2018[4]). In contrast, the shares of revenues from VAT and CIT in total tax revenues tend to be lower in countries with high levels of GDP per capita (Figure 2.13 left panel). Higher tax-to-GDP ratios also tend to be associated with lower shares of CIT and VAT in total tax revenues (Modica, Laudage and Harding, 2018[7]) (Figure 2.13 right panel).
Figure 2.13. Tax revenue as a share of total revenue, GDP per capita, and tax-to-GDP ratios in 2017
Source: OECD Global Revenue Statistics and OECD National Accounts Statistics
Tax structures have remained relatively stable
The average tax structure across OECD countries is dominated by SSCs, PIT and VAT. Overall, in the OECD, SSCs and payroll taxes accounted for 28.2% of total tax revenues in 2018. PIT was the second largest source of tax revenues, accounting for an average of 23.9% of total tax revenues. The VAT made up slightly over one fifth of the OECD’s average tax mix in 2018, while other consumption taxes accounted for 12.0% of the tax mix. On the other hand, taxes on corporate income and property are much less significant sources of tax revenues, accounting for 8.8% and 5.5% of the OECD average tax mix in 2018 respectively (Figure 2.14).
Figure 2.14. OECD average tax mix in 2000, 2009 and 2018
Source: OECD Revenue Statistics Database.
After the 2008 crisis, the OECD average shares of SSCs and VAT in total tax revenues increased. This partly reflected the effects of the tax reforms that were introduced in response to fiscal consolidation pressures following the global financial crisis, in particular increases in SSCs and in standard VAT rates (OECD, 2016[8]).These trends also highlight the rapid revenue-raising effects of increases in SSCs and consumption taxes compared to other taxes. In 2018, the average share of total revenues collected from SSCs in OECD countries increased for the first time since 2009 (to 27%) and the average SSC revenues as a share of GDP increased slightly 0.2 percentage points (Figure 2.15) (OECD, 2019[2]). The share of VAT in the OECD average tax structure was relatively stable until it increased by 0.6 percentage points from 2016 to 2018.
On average the share of revenues collected from CIT has fallen, after steadily increasing from 2014 to 2017. The share of CIT in total tax revenues increased to 11.1% in 2007 and then dropped to a low of 8.7% in 2010, directly after the global financial crisis (Figure 2.15). From 2014 to 2017, the share of CIT in the OECD average tax mix steadily increased to 9.3% and then fell by 0.5 percentage points in 2018. This reversal was driven in part by Hungary and the United States, where the share of CIT in total tax revenues dropped by over two percentage points.
The average share of PIT in total tax revenues has also increased slightly from 2017 and is now very close to its level in 2008. Analogous to CIT, the share of PIT revenues in the OECD average tax structure initially fell after the global financial crisis, reaching a low of 22.9%. Since then, the share of PIT has fluctuated. From 2010 to 2015, PIT revenues steadily increased, partly reflecting the effects of PIT rate increases and PIT base broadening measures (OECD, 2016[8]), as well as changes in the labour share, which tends to have a countercyclical behaviour (i.e. to increase during economic downturns). The share of PIT revenues then fell by 0.6 percentage points between 2015 and 2016 and increased again between 2016 and 2018, almost reaching its pre-crisis level.
Figure 2.15. Cumulative percentage point changes in tax revenues since 2008
Source: OECD Revenue Statistics Database.
Looking ahead: potential revenue impacts of the COVID-19 crisis
While the chapter focuses on past trends based on available data, this section considers the potential effects of the COVID-19 crisis on tax revenues, which are expected to be significant. The COVID-19 pandemic and the policy responses linked to it will lead to a sharp reduction in tax revenues because of major reductions in economic activity and tax policy measures that reduce or waive the collection of tax liabilities.
These revenue impacts will occur through a variety of channels:
The decline in economic activity and employment will reduce tax collections and social security contributions linked to personal and business income, resulting in lower CIT, PIT, SSCs and payroll tax receipts. CIT revenues may also remain depressed for some time into the future as any losses generated in 2020 will generally be available to be carried forward and applied against future income.
The reduction in consumption, both from containment and mitigation measures and reduced consumer confidence, combined with a shift towards the consumption of necessity goods, which are often zero-rated or exempt under VAT systems, will reduce consumption tax revenues and particularly revenues from VAT, although excise and environmentally-related taxes will also be affected. Property taxes are likely to be less affected as they are not tied as directly to the economic cycle, although the various measures introduced during containment can be expected to have some impacts on property values and, therefore, taxes directly linked to property valuations may also be affected.
A fall in tax revenue from tourism and travel is also expected, through losses in the form of reduced tourism, aviation and accommodation taxes, but also through falls in VAT revenues.
Resource prices, notably oil, have fallen significantly, which for resource-rich countries will reduce revenues from excises and royalty payments and lead to lower revenues from corporate income taxes.
In addition to automatic stabilisers, discretionary measures in response to the crisis will also have a significant impact on tax revenues (see Special Feature).
On average, trends in tax revenues and in GDP tend to move together, but tax revenues tend to fall faster than GDP when GDP growth is limited or negative (Belinga et al., 2014[9]). For instance, a greater decrease in tax revenues than in GDP was seen during the global financial crisis in most countries. Estimating the impact of COVID-19 on global GDP remains a highly speculative exercise, but early estimates of the impact suggest that the impact on tax revenues is likely to be significant, due to the large activity decline and the potentially even larger effect on tax revenues.
Impacts on revenues will vary across countries and across time. In the short-term, reductions in tax revenues are likely to be driven by the impact of confinement measures and reduced consumer confidence, as well as the direct impact of COVID-19, and will be greatest in countries with high exposure to the global economy via trade, tourism, or participation in global value chains. In the longer term, the impact on tax revenues will depend in large part on the effectiveness of policy responses taken to limit the economic impact of the crisis and on international transmission channels.
References
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Notes
← 1. At the time of writing, China was not included in the OECD Global Revenue Statistics Database.
← 2. It should be noted that the 2018 tax revenue data presented in this chapter is provisional.
← 3. The majority of Chile’s social contributions are paid into privately managed funds, which constitute the main part of Chile´s social security system. Accordingly, the payment of such social contributions to those managers are mandatory under the social security system of Chile, but those payments are excluded from the calculation of Chile’s tax revenues as such payments are, under the definition applied, not regarded as taxes.
← 4. Business Korea URL: http://www.businesskorea.co.kr/news/articleView.html?idxno=31107 (accessed 04/02/2020); Korea Times URL: http://koreatimes.co.kr/www/biz/2020/01/488_267520.html (accessed 04/02/2020)
← 5. In 2015, the Irish economy experienced a nominal GDP growth of over 30%. This was, in part, due to a number of large multinational corporations reallocating their economic activities, and more specifically their underlying intellectual property, to Ireland.
← 6. Chile has a dividend imputation system (either total or partial), therefore part of its revenues from personal income taxes are computed as corporate income tax revenues.