A new OECD report 'Tax Policy Reforms in the OECD' reviews the tax reforms which were announced, legislated or implemented by OECD member states during 2015. This report, which is the first step in what will become a regular OECD monitoring process, identifies tax policy trends across the OECD.
It was pleasing to see the OECD announce that 'tax policies have direct implications on economic growth as well as on how the benefits of growth are shared across the population.' The OECD goes on to say 'monitoring tax policy reforms over time and understanding the context in which they were undertaken is crucial to informing tax policy discussions and supporting countries in the assessment and design of tax reforms.' These are indeed worthy aims but, if the UK experience is anything to go by, serious and detailed work on the development of long-term tax policy tends to be overtaken by the short-term needs of governments.
So what are the OECD’s principal conclusions?
Unsurprisingly perhaps, the OECD reports that tax reforms launched in 2015 were largely focussed on boosting growth. These were characterised by reductions in labour taxes and corporate income taxes. As such, the 2015 changes are significantly different from the tax changes enacted immediately after the global financial crisis. At that time the emphasis was on fiscal consolidation supported by increases in labour taxes and VAT rates.
The OECD notes that many of the corporate income tax and VAT reforms introduced during 2015 reflected two specific OECD initiatives - the OECD/G20 base erosion and profit shifting (BEPS) project and the OECD international VAT/GST guidelines. Forgive me for saying this, but I can’t help a certain feeling of 'they would say that wouldn’t they?' It could equally be observed that some recent changes in the tax systems of OECD member states have been intended either to compete with other member states by increasing the tax attractiveness of a jurisdiction for mobile businesses, or even to pre-empt the BEPS initiative through the introduction of new local taxes. Two examples of these are the UK’s 'Google tax' and the Australian initiative to increase the amount of tax levied by the Australian authorities on multi-national digital businesses.
The OECD report also demonstrates a move in some countries towards higher taxes on personal capital income, but only relatively limited moves towards the reform of environmental and property taxes. These are all areas where the OECD has previously identified scope for governments to raise additional revenues while supporting inclusive economic growth.
But what will this mean?
While the measured language of the OECD exudes a degree of calm and control, the reality may be rather more dynamic, turbulent even, than the report indicates.
With many countries now reviewing electoral engagement, social inclusiveness and income inequality, all of this suggests that the OECD report may signpost reforms which will:
- Continue to shift the balance of taxation away from businesses and towards individuals; and
- Increase the top rates of taxes on income and on capital gains.
However, the report does not seem to identify any particular trend in the development of new taxes on wealth or capital although these were extensively discussed during 2015. That’s definitely something to watch out for in future editions.
It’s interesting to note that Austria, Belgium, Greece, Japan, the Netherlands, Norway and Spain implemented, legislated or announced the most comprehensive tax reforms in 2015.
With the prospect of the UK Chancellor taking a somewhat different view of fiscal policy in the forthcoming Autumn Statement, and with the possibility in the USA that business taxes may be reformed after the forthcoming presidential election, the 2016 and 2017 OECD reports will make interesting reading.
And what are our predictions?
It’s far easier to be wrong than right in this area but, for what they are worth, here are our thoughts:
- tax competition will continue between nations. As a result, the general decline in corporate tax rates will continue with VAT and individual taxes increasing;
- social and political trends in OECD member states will mark a more conscious use of the tax system to achieve a redistribution of income and personal wealth; and
- if and when the USA finally reforms its approach to the taxation of businesses, then it is not unreasonable to expect a massive boost in the repatriation of profits currently held offshore which will, in turn, be a game-changer.
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