The OECD has issued a report entitled “Tax Policy Reforms in the OECD 2016”. This is the first edition of an annual monitoring project that will provide a summary of tax reforms in OECD countries each year. This report identifies the tax policy trends in 2015.
Following the financial crisis governments focused on fiscal consolidation and tended to increase corporate income tax, labor taxes and value added tax (VAT). The OECD notes however that in 2015 the tax policy reforms were oriented towards increasing economic growth and implementing reductions in corporate income tax and labor taxes. There were also partial shifts towards consumption and environmentally related taxes.
OECD countries were also moving towards higher taxes on individual income from capital, with higher tax rates introduced for dividends and other sources of personal capital income. This appears to show a focus on reducing the differential tax treatment of income from capital and income from labor. It could also be a sign of a renewed focus on dealing with inequality.
The tax wedge on labor income was more stable in 2015 following years of increases. Many of the tax reforms announced in 2015 indicate a tax policy trend towards reducing the tax burden on labor income. These focus on reduced tax burdens for low income groups and for households with children with tax rate cuts and increases in tax allowances and tax credits.
The reforms of environmental taxes in 2015 were mainly limited to changes to the tax on energy use and the way vehicles are taxed. Changes to transport fuel taxation led to a smaller gap between tax on diesel and petrol in some countries, countering the adverse environmental impact of lower tax per liter on diesel. Changes to vehicle tax aimed to encourage the purchase of less polluting vehicles or alternative fuel vehicles. These changes improved the environmental effectiveness of the taxes and may also increase tax revenues in some countries in the short term.
There were relatively limited reforms of property taxes. The OECD has pointed out that this is an area where there is scope for governments to raise additional tax revenue while continuing to support economic growth. However in 2015 some OECD countries raised property tax burdens and other countries reduced them. The OECD considers that the potential to raise tax revenue efficiently through property taxes, especially recurrent taxes on residential property, is not being fully exploited.
The influence of international tax initiatives in 2015 was clear. Tax policy reforms among OECD countries resulted from the impact of the OECD/G20 recommendations on base erosion and profit shifting (BEPS). Several countries implemented measures to broaden the corporate tax base to protect erosion of the tax base through tax avoidance by multinational enterprises. A number of OECD countries implemented specific anti-avoidance measures.
The OECD considers that monitoring tax reforms and understanding the context in which they are implemented can contribute to policy discussions and help to support countries in the design of tax reforms.