The 2021 edition of the OECD’s annual Revenue Statistics report shows that the OECD average tax-to-GDP ratio has risen slightly to 33.5% in 2020. This represents a 0.1 percentage points growth since 2019. Although nominal tax revenues fell in most OECD countries, GDP contraction was often greater, resulting in a small increase in the average tax-to-GDP ratio.
This year’s publication includes the first comparable analysis on the initial impact of COVID-19 on tax revenue across OECD member countries. It suggests that government support measures have contributed to provide tax revenue stability by protecting employment and reducing corporate bankruptcies.
The brief also finds that many of the tax policy measures implemented to support households and businesses often had a direct revenue cost via reductions in tax liabilities, enhanced tax credits and allowances, and reductions in tax rates. In addition, reduction in economic activity in 2020 reduced labour force participation, household consumption and business profits, further affecting tax revenues, although the shock was shorter and more sector-specific than the global financial crisis, contributing to a more modest impact on tax revenues.
The report shows that countries’ tax-to-GDP ratios in 2020 ranged from 17.9% in Mexico to 46.5% in Denmark, with increases seen in 20 countries and decreases in the other 16 for which 2020 data were available. The largest increases in tax-to-GDP ratios in 2020 were seen in Spain (1.9 percentage points), Mexico (1.6 p.p.) and Iceland (1.3 p.p.). The largest decreases were seen in Ireland (1.7 p.p.), Chile (1.6 p.p.) and Norway (1.3 p.p.).
Across the OECD, corporate income tax and excise tax revenues were the most negatively impacted by the COVID-19 crisis. Corporate income tax incomes saw the largest average drop (0.4 p.p. of GDP, with declines in 26 countries); and lower fuel use due to mobility restrictions led to a small but widespread decrease for excise revenues (0.1 p.p. on average with declines in 28 countries).
However, personal income taxes and social security contributions registered a growth in revenues, on average (by 0.3 p.p. in both cases, and in 28 and 29 countries respectively). The fact that revenue from these two taxes held up most likely reflects that governments provided considerable aid to maintaining the connection between workers and the labour market in this crisis. No change was seen in property taxes or VAT as a share of GDP, on average.
The full report is available on the OECD website
Source: OECD