These figures and a range of other internationally comparable data on tax burdens and structures across all levels of government for the 29 OECD Member countries can be found in the 2000 issue of the OECD’s annual compendium, Revenue Statistics. The rise in revenues from income taxes was the main factor behind an increase in the OECD average ratio of total tax revenue to GDP from 36.8% in both 1996 and 1997 to 37.0% in 1998 (see tables).
In the absence of any general upward trend in statutory income tax rates in OECD countries, the rise in income tax revenues was a reflection of strong economic growth during the period. Such growth increases the revenues from most taxes, but has a particularly strong influence on income tax revenues. In the case of personal income taxes, this is because of their progressive structure, in which a higher proportion of income is taken in tax as income rises. In the case of corporate income tax, this is because corporate profits tend to increase more than in proportion to output.
The growth of income tax revenues during 1997 and 1998 was particularly strong in France, where it was one of several factors allowing the cuts in income tax rates announced recently. By contrast, New Zealand, Czech Republic, Denmark, Finland, Hungary, Luxembourg, Netherlands and Poland all saw their ratios of income tax to GDP fall during the period.
Elsewhere in the tax base, the average share of GDP levied in the form of taxes on specific goods and services, a category that includes taxes on alcohol, tobacco and fuel, fell from 4.5% in 1996 to 4.3% in 1997 and 4.1% in 1998, with 20 out of 27 countries experiencing a decline (see tables). The fall was particularly sharp in Mexico and Poland. Increases, by contrast, were reported in Denmark, Spain, Switzerland and Turkey. In recent years, the trend has been towards a fall in the share of tax revenues from specific products as a proportion both of GDP and of total tax revenue. This has been associated with the spread of general sales taxes, such as VAT, in place of many specific taxes. However, preliminary figures for 1999 from 22 countries suggest that this long-term trend may be tailing off: only 10 of these countries expected their 1999 revenues from specific taxes to fall as a proportion of total tax revenue.
Under the heading of environmentally related taxes, governments continue to derive their largest revenues from excise taxes on transport fuels. Despite pressures from the environmental lobby for higher taxes on the use of non-replaceable energy resources, however, the relative importance of these revenues has stayed fairly constant in industrialised countries over the past few years. Although some countries showed an increase between 1996 to 1998, 11 out of the 22 OECD countries that separately identify revenues from such taxes reported a reduction in the contribution from such taxes to total revenue during the period (see chart). These included 7 out of the 13 European Union countries that provide such data. Preliminary data for 1999 suggest that the contribution of these taxes to total revenue rose in more countries, but only 6 out of the 16 countries with data for 1999 showed an increase over 1996 levels.
Excluding fuel taxes, environmentally related taxes make only a very minor contribution to government revenues. Nonetheless, the data show that they can have interesting effects. For example, Denmark reports a reduction in the revenue from the tax on nickel-cadmium rechargeable batteries, demonstrating that an environmentally successful tax can erode its own base. The tax has raised the price of these batteries, which are very toxic if disposed of without proper precautions, to such an extent that consumers have switched to other less environmentally damaging alternatives.
©OECD Observer November 2000