Tax reform is an on-going process, with tax systems continuously adopting to reflect changing economic, social and political circumstances. Over the last two decades, almost all OECD countries have undertaken structural changes in their tax system which have altered the way these systems function and their economic and social impacts. In some countries – as, for instance, many of the Eastern European economies in transition - the reforms have been profound and implemented over a very short period of time. In other countries – as, for instance, most of the European countries - the reforms consists of a gradual process of adaptation. As a consequence, the tax systems in operation in the 30 OECD Member countries today are fundamentally different from those which operated in the mid-1980s.
The recent tax reforms have been driven by the need to provide a more competitive fiscal environment: one which encourages investment, risk-taking, entrepreneurship and provides increased work incentives. At the same time, governments have been aware of the importance that taxpayers maintain their faith in the integrity of their tax systems. In this context fairness and simplicity are two key words. Fairness requires that taxpayers in similar circumstances pay similar amounts of tax and that the tax burden is appropriately shared. Simplicity requires that paying your taxes becomes as painless as possible and that the administrative and compliance costs of collecting taxes are kept at a minimum.
Almost all the tax reforms of the last two decades involving the income tax can be characterized as rate reducing and base broadening reforms, following the lead given by the United Kingdom in 1984 and the United States in 1986. In the mid-1980s, most OECD countries had top marginal income tax rates in excess of 65 per cent. Today, most OECD countries have top rates below, and in some cases substantially below, 50 per cent. Similarly, top statutory corporate income tax rates in the 1980s were rarely less than 45 per cent. In 2005, the OECD average rate was below 30 per cent and an increasing number of countries have rates below 25 per cent.
These reforms, however, have led only recently to a fall in the overall tax burden (measured by the tax-to-GDP ratio). From 1975 to 2004, most OECD countries experienced an increase in this ratio. Some, like Finland and France, saw the tax burden increase by almost a third. A small number of countries – notably the United Kingdom and the United States – experienced a stable tax burden. It does appear, however, that this long term upward trend peaked in 2000 and the latest figures available to the OECD suggest that most countries are now below the peak 2000 level.
Most reforms have also tried to shift the balance in the tax structure from taxes on income and profits towards taxes on consumption – a process facilitated by the increased use of value added taxes (the United States is now the only OECD country without this form of consumption tax).
We focus now on some countries that recently have presented tax reforms at the meetings of Working Party N°2 on Tax Policy Analysis and Tax Statistics. Respectively, we present the tax reforms in:
Based on these tax reforms a conclusion is presented.