Tax systems in this top group tend to be competitive, equitable and meet the state’s demand for revenues, although the crisis period has opened budget deficits in most countries.
High ratings come despite overall high tax burdens in many of these countries, particularly Sweden, Norway and Finland, with their well-developed social transfer systems. However, tax evasion is strikingly low.
Critics of tax cuts in Sweden have pointed to new budget deficits and growing inequality. Iceland has shifted from a deeply regressive tax framework to one more responsive to inequality, while Finland has notably decreased its system’s complexity. In Finland, Norway and Luxembourg, households bear a relatively substantial portion of the overall tax burden.
This group diverges substantially, with some of the highest- and lowest-tax societies in the OECD. With a few notable exceptions, most nevertheless produce revenues close to sufficient for their needs.
The negative standouts in this category are Slovakia and Ireland, which respectively sought to attract foreign businesses with flat taxes and very low corporate taxes. Both retained these policies into the crisis, resulting in large fiscal deficits.
Despite having the highest tax burden in the OECD, Denmark has sought to broaden its tax base, and has lowered taxes on the highest earners. The Netherlands has sought to encourage entrepreneurs with tax-code shifts.
The loss of substantial tax revenues from the financial sector has left the UK with a gaping hole in its budget. Tax evasion has risen notably compared to the SGI 2009 in Slovakia and the UK, and is also a problem in newcomer Chile.
In this group, weaknesses in tax systems have been exposed by crisis, often leaving substantial gaps in national budgets.
Sufficiency of revenue is a serious problem in Spain, Japan, the USA, Belgium, France and Portugal. Obama’s promises to eliminate the Bush-era tax cuts in the USA were blocked by Republicans, while plans to lower taxes in Germany were undermined by crisis.
Poland is this criterion’s most substantial gainer relative to the SGI 2009, driven in part by reductions in social security contributions. More sweeping reforms were halted by the crisis.
Tax reforms in Japan failed to address structural inequities, while a switch to a flat-tax system in the Czech Republic proved largely revenue-neutral. Hungary’s fiscal adjustment contained substantial tax increases.
Substantial imbalances or inequities, and often widespread evasion characterize the tax systems of this bottom group.
Austria shows the criterion’s most substantial decline relative to the SGI 2009, with “profound” imbalances that place the burden of payment on labor rather than companies.
Tax collection is a serious problem in Turkey, Mexico, Italy and Greece, with widespread evasion putting a relatively higher burden on those who do pay, particularly wage and salary earners. Informal or black economy activity is common.
In these latter four countries, insufficient revenue undermines social policies. Mexico’s rates in particular are unrealistically low.