The OECD’s recent Tax Policy Reforms 2018 – which covers latest tax trends among 35 countries – shows that several member countries have lowered taxes on businesses and individuals as part of their 2018 tax reforms.
Importantly, it identifies that tax policy has become more significant in economic stimulus. The focus of OECD countries has been on supporting investment – not only through lower corporate taxes but also personal tax cuts for lower and middle income earners, and property tax changes.
In terms of headline rates, the average corporate income tax rate across the OECD has dropped from 32.5 percent in 2000 to 23.9 percent in 2018, although the reductions have been more modest in recent years, with the obvious exception of the US. They tend to have been concentrated among those countries whose rates were relatively high to start with.
Interestingly, the use of tax policy to support ‘public goods’ has been increasing in two areas, harmful consumption and the environment. There have been new or increased excise taxes on sugar-sweetened beverage in Ireland, South Africa and the United Kingdom and the introduction of a tax on cannabis in Canada.
Environmental tax reforms have continued to focus on energy taxes but efforts have been made to go beyond road transport. Changes to vehicle taxes to encourage the use of cleaner vehicles have continued. But despite their large potential to generate environmental improvements, tax reforms outside of energy and vehicles such as taxes on waste, plastic bags or chemicals have been much less frequent.
In terms of compliance, there has been a continued focus on anti-avoidance as part of the OECD’s ongoing Base Erosion & Profit-Shifting (BEPS) agenda, although efforts have varied quite significantly.
This has included indirect taxes where increased revenues are expected from significant tax administration and anti-fraud measures in a number of countries. South Africa is the only country where the standard VAT rate was raised in 2018.
The taxation of highly digitalised businesses has become a major concern for many countries. But once again, no common approach so far on how to address these issues, creating a risk of increased complexity and uncertainty.
Some significant property tax reforms have included the doubling of the exemption threshold for the estate and gift tax in the United States, the introduction of a tax on securities accounts in Belgium, repeal of the housing tax for 80 percent of households in France and the elimination of its net wealth tax which was replaced by a tax on real estate wealth.
But of most relevance to Australia should be the trend to expand tax incentives to support investment including expansion of general investment incentives, changes to depreciation rules and increased in small medium enterprise (SME) related deductions.
- The United States has brought in full and immediate expensing of capital investment. The first year bonus depreciation was increased from 50 percent to 100 percent, introducing the expensing of investments in equipment with tax lives of 20 years or less.
- Germany increased the value limit for full and immediate expensing of low value assets.
- Japan has announced new tax incentives with the goal of encouraging companies to increase employee salaries.
This is where – if company tax cuts are stalled indefinitely – policymakers should look. Alternative solutions to encourage investment and business growth are needed. These include accelerated depreciation and enhanced investment allowances in order to keep companies’ effective tax rate (ETR) down, even if the headline rate remains high.
Examining reforms other countries introduced last year in this respect to see whether they are viable options in Australia would be a good start.