The tax ratios shown in this Report express aggregate tax revenues as a percentage of Gross Domestic Product (GDP). It is important to recognise that the value of this ratio depends on its denominator (GDP) as well as its numerator (tax revenue), and that the denominator is subject to revision.
The numerator (tax revenue)
- For the numerator, the OECD Secretariat uses revenue figures that are submitted annually by correspondents from national Ministries of Finance, Tax Administrations or National Statistics Offices. Although provisional figures for most countries become available with a lag of about six months, finalised data become available with a lag of around one-and-a half years. Final revenue data for 2010 were received during the period May-August 2012.
- In thirty OECD countries the reporting year coincides with the calendar year. In four countries — Australia, Canada, Japan and New Zealand — have different reporting years. Reporting year 2010 includes Q2/2010–Q1/2011 (Canada, Japan) and Q3/2010–Q2/2011 (Australia, New Zealand) respectively (Q = quarter).
The denominator (GDP)
- For the denominator, the GDP figures used for this Report are the most recently available in early September 2012. By that time, the 2010 and 2011 GDP figures were available for all the OECD countries but information is also needed for the first two quarters of 2012 in order to calculate the 2011 tax to GDP ratio for New Zealand. The figure for the second quarter has been estimated by the Secretariat.
- Using these GDP figures ensures a maximum of consistency and international comparability for the reported tax-to-GDP ratios.
- The GDP figures are based on the OECD Annual National Accounts (ANA – SNA) for the thirty OECD countries where the reporting year is the actual calendar year.
- Where the reporting year differs from the calendar year, the annual GDP estimates are obtained by aggregating quarterly GDP estimates provided by the OECD Statistics Directorate for those quarters corresponding to each country’s fiscal (tax) year. For example, in the case of Canada Q2/2011–Q1/2012
Revisions to the numerator and denominator
Both the numerator (tax revenues) and the denominator (the GDP figure) are subject to revisions, as more accurate estimates of the amounts involved become available. Such revisions will directly impact on published tax ratios.
- If the tax figure is revised upward and the GDP figure remains unchanged, the tax ratio will increase.
- If the GDP figure is revised downward, the tax ratio will also go up, even though aggregate tax revenues have not increased.
- Conversely, a higher GDP estimate implies a lower tax ratio, even if the amount collected in taxes has not changed.
- Revenue data, especially for recent years, can be subject to infrequent and usually minor revisions. GDP figures are revised and updated more frequently, though not necessarily for all countries at the same time, reflecting better data sources and improved estimation procedures. Generally these revisions have a rather limited impact on tax ratios.
- Occasionally, however, GDP figures may change in a more fundamental way when internationally agreed guidelines to measure the value of GDP are changed. An example of this occurred in the mid-1990s, when the System of National Accounts 1993 (1993 SNA) began to gradually replace its predecessor, the System of National Accounts 1968 (1968 SNA) and the revised guidelines are now being adopted for all the GDP figures used in this report back to 1970 and earlier for some countries.
- The twenty-one OECD countries that are member states of the European Union (EU) have to adhere to the European System of Integrated Economic Accounts (ESA) for computing their GDP figures. The ESA is primarily an elaboration of SNA, though differing from it in several minor aspects which are not pertinent to this Report. Following the 1993 revision to the System of National Accounts, the 1979 ESA was replaced by the 1995 ESA. By mid-1999, all EU member states had implemented the 1995 ESA to measure their GDP.
- The movement from the old national accounting standards to 1993 SNA/1995 ESA resulted in all countries recording a higher level of GDP than was previously the case because a number of items which used to be excluded from GDP are now included. Since tax figures reported in Revenue Statistics were hardly affected by these changes, tax ratios fell as countries progressively moved towards implementing the revised statistical framework. The quantitative impact of GDP revisions on tax-to-GDP ratios was illustrated in special feature S.3 in the 1999 edition of this Report.
- One particular problem raised by the 1993 SNA/1995 ESA revisions is that countries differ in the period for which they have revised their GDP figures. Such differences impact on time series of tax-to-GDP ratios for years before 2003. To limit this distortionary impact, these latest figures use revised GDP estimates for 1970 and later years in those cases where OECD countries have not reported revised GDP figures (compare columns 2 and 3 of Table G). These estimates have been provided by the OECD Statistics Directorate.
The 2008 SNA has now been finalised but the GDP figures presented in this publication continue to be based on the 1993 SNA for all countries except Australia. Most other OECD countries will implement the 2008 SNA in 2014 with the other countries implementing it shortly after. The GDP figures for Australia are between 1.25% and 1.5% higher on account of the adoption of the 2008 SNA in this publication.
Non-wastable tax credits are tax credits that can give rise to a payment to taxpayers when the credit exceeds their liability for that tax. They are sometimes referred to as ‘payable’ or ‘refundable’ tax credits. The impact of the treatment of these non-wastable tax credits on the level of tax-to-GDP ratios is shown in Table D.
Paragraphs 20 and 21 of the OECD Revenue Statistics Interpretative guide indicate that
- only that portion of a non-wastable tax credit that is used to reduce or eliminate a taxpayer’s tax liability should be deducted in the reporting of tax revenues. For convenience, this may be referred to as the ‘tax expenditure component’ of the credit.
- the part of the tax credit that exceeds the taxpayer’s tax liability and is paid to that taxpayer should be treated as an expenditure item and not be deducted in the reporting of tax revenues. This part may be referred to as the ‘transfer component’.
- In Table D, the “split basis” as shown in columns 5 and 8 represents the treatment consistent with the Interpretative Guide and the OECD tax revenue figures.
Historically there have been significant practical difficulties in implementing these paragraphs of the Interpretative guide, resulting in some lack of uniformity of reporting. In addition, distinguishing between tax and expenditure provisions is conceptually difficult and there are valid arguments for alternative treatments. Consequently there is no ideal solution to the problem of how these tax credits should be treated. Two alternatives to the split basis are presented in Table D:
- the “net basis” treats non-wastable tax credits entirely as tax provisions, so that the full value of the tax credit reduces reported tax revenues, as shown in columns 4 and 7.
- the “gross basis” is the exact opposite, treating non-wastable tax credits entirely as expenditure provisions, with neither the transfer component nor the tax expenditure component being deducted from tax revenue, as shown in columns 6 and 9.
Table D reports the values of the non-wastable tax credits and their two components for the years 2000, 2005 and 2010, and shows the results of using them to calculate tax revenue values and their associated tax-to-GDP ratios on the three possible bases. In making any comparison of tax-to-GDP ratios based on these alternative treatments of non-wastable tax credits, the reader should be aware of their potential drawbacks.
- While the gross basis provides comparability between the treatment of public expenditure on in-work income related benefits and non-wastable tax credits, it does not provide comparability between wastable and non-wastable credits. Changing a wastable tax credit into a non-wastable tax credit, even if it involves minimal fiscal cost or impact on taxpayers, could produce a large increase in reported revenue. This is because amounts previously deducted from tax revenues would be treated as an expenditure provision and no longer be deducted.
- The most serious drawback of the net basis is that it does not ensure comparability between countries with and without non-wastable tax credits. This is because it reduces tax revenues for countries with non-wastable tax credits by amounts that would be treated as expenditure in countries that use comparable expenditure programmes to deliver transfers to those who do not pay taxes. Even between countries with non-wastable tax credits, reporting on a net basis would produce lower tax revenues (everything else being the same) for countries that are giving greater assistance to non-taxpayers with these credits. Arguably, this may give a misleading impression of the extent of the tax system.
However, with some exceptions, the choice of method for reporting non-wastable tax credits has only a small impact on the ratio of total tax revenue to GDP (Table D). For the countries with available data, the differences between the ratios on a net basis and on a gross basis are
- one percentage point or more in only the Czech Republic, Germany, New Zealand and the United Kingdom, and
- less than half a percentage point in Austria, Belgium, France and Norway.
Table D. Effect of alternative treatment of non-wastable tax credits, 2000-10
Table G. The timing of GDP revisions arising from the 1993 SNA/1995 ESA
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