Executive Summary
In 2019, the average OECD tax-to-GDP ratio was 33.8%, a decrease of 0.1 percentage points since 2018. This is the first decrease in the OECD average tax-to-GDP ratio that has been observed since 2009, following the global financial crisis (GFC) in 2008 (except in 2017, which was an exceptional case due to the one-off stability contributions in Iceland in the preceding year). The most recent data on the structure of tax revenues in OECD countries shows that corporate tax revenues reached 10% of total tax revenues in 2018: this is the first time they have returned to this level since the GFC, although it remains lower than the pre-GFC peak of 11.5%.
In this publication, taxes are defined as compulsory, unrequited payments to the general government or to a supranational authority. They are unrequited in that the benefits provided by governments to taxpayers are not normally allocated in proportion to their payments. Taxes are classified by their base: income, profits and capital gains; payroll; property; goods and services; and other taxes. Compulsory social security contributions (SSCs) paid to general government are also treated as taxes. Revenues are analysed by level of government: federal or central; state; local; and social security funds. Detailed information on the classifications applied is set out in the Interpretative Guide in Annex A.
Across OECD countries, tax-to-GDP ratios in 2019 ranged from 16.5% in Mexico to 46.3% in Denmark. Between 2018 and 2019, the OECD average tax-to-GDP ratio decreased from 33.9% to 33.8%, due to falls in 15 countries that were larger, on average, than the increase in the remaining countries:
The largest fall was seen in Hungary (1.7 percentage points), partially due to a decrease in corporate income taxes following the removal of the compulsory tax advance supplement on business taxes, as well as smaller decreases in a number of other taxes. Other large decreases were seen in Iceland (1.1 percentage points), Belgium and Sweden (1.0 percentage points in both countries). Eleven other countries had decreases of less than one percentage point.
An increase in tax-to-GDP ratios from 2018 to 2019 is observed in the remaining 20 of the 35 countries for which preliminary 2019 data is available. The increase in the tax-to-GDP ratio was largest in Denmark (2.0 percentage points) due to higher than expected payments of income taxes in 2019. There were no other increases above one percentage point.
Across the last decade, 31 OECD countries reported higher tax-to-GDP ratios in 2019 than in 2009, with the greatest increases in Greece and the Slovak Republic (8.0 and 5.8 percentage points, respectively). Among the remaining six countries, tax levels in 2019 were more than five percentage points lower than in 2009 in Ireland and more than three percentage points lower in Hungary.
In 2018, the latest year in which final data is available for all countries, social security contributions (SSCs) amounted to the largest share of tax revenues in the OECD, at just over one-quarter (25.7%), on average. Together with personal income taxes (23.5%), these two tax types amounted to nearly one-half of tax revenues in OECD countries. Value Added Tax (VAT) accounted for a further one-fifth of total revenues (20.4%). Other consumption taxes and taxes on corporate income accounted for smaller shares of tax revenues (12.3% and 10.0% respectively), with property taxes (5.6%) and residual taxes accounting for the remaining share.
Since 2017, the average share of income taxes in total tax revenues has increased by 0.4 percentage points. This was largely due to increases in the share of corporate income taxes, which continued their recent upward trend from 9.2% of total tax revenues in 2014 and 2015, 9.4% in 2016, 9.7% in 2017 and 10.0% in 2018. However, this is still lower than the peak recorded share of corporate income taxes at 11.5% of total revenues in 2007. By contrast, the average share of tax revenues from taxes on goods and services decreased by 0.3 percentage points in 2018: although VAT revenues were unchanged at 20.4% of total revenues, excise tax revenues fell by 0.4 percentage points.
On average, subnational governments received a slightly higher share of tax revenues in 2018 relative to 2017. The central government’s average share of revenues in 2018 fell from 53.7% to 53.4% of general government revenue in federal countries and from 63.6% to 63.5% in unitary countries. In federal countries, 25.1% of tax revenues were received at subnational level on average (ranging from 4.5% in Austria to 49.6% in Canada), with roughly two-thirds of revenues being received by state governments and one-third by local governments. In unitary countries, the share of local government revenues was 11.1% on average, ranging from less than 0.9% in Estonia to 35.1% in Sweden.
A special feature in this publication examines the drivers of recent changes in consumption tax revenues in OECD countries by disentangling their policy and macroeconomic drivers. It examines the global financial crisis of 2008 (GFC) to identify the channels through which consumption tax revenues are affected during an economic downturn and to provide initial insights into how the COVID-19 crisis and the policy actions taken in response to it will affect tax revenues.
It concludes that VAT systems are vulnerable to economic shocks, particularly if the crisis directly affects private consumption rather than investment. During the GFC, the level of consumption remained relatively stable, while consumption tax revenues decreased sharply due to a shift in consumer spending towards necessity goods and services and increases in government consumption – changes which have not since fully reversed. The COVID-19 crisis is likely to have an even bigger impact on consumption tax revenues than the GFC, because the current crisis has affected consumption directly and to a far greater extent as a result of lockdowns, including the forced closure of businesses in certain sectors (e.g. tourism and hospitality). Some of the other changes in consumption patterns observed in the current crisis mirror those from the 2008 crisis, including an increase in household spending on necessities and in government spending. As these areas of expenditure are often exempt from VAT, consumption tax revenues are expected to increase less than proportionally to the increase in government spending. Over time, it is expected that consumption tax revenues will gradually increase as a share of GDP and will return to their pre-crisis levels, as private spending returns to pre-crisis patterns and governments take action to restore lost revenues.
Consumption taxes will remain an important part of the toolkit that governments have to facilitate the economic and fiscal recovery after the COVID-19 crisis. In considering consumption tax policy after the crisis, governments may wish to give careful consideration to how the structure of their VAT systems will affect the resilience of their tax system and its revenues in future economic downturns. This will also require careful consideration of the complexity of VAT systems, and the likely behavioural and distributional impacts of any changes to improve resilience.