Governments Protected Tax Incomes in Covid With Big Spending

(Bloomberg) -- There’s a lesson emerging for governments from the Covid pandemic: big spenders make big savings. 

Compared to previous crises, tax revenues suffered less in 2020 as governments preserved the fabric of their economies with vast outlays, according to an OECD report. That’s part of the reason why the ratio of tax to economic output increased by 0.1 percentage points to 33.5% on average across the organization’s member countries. 

“Government support measures contributed to the relative stability of tax revenues by protecting employment and reducing corporate bankruptcies to a considerably greater extent than in the global financial crisis in 2008-2009,” the OECD said Monday as it released its annual taxation statistics. 

To be sure, nominal tax revenues did fall during lockdowns due to deferrals and cuts and as consumption and profits dropped. But in many cases, the reduction in economic output was greater than the foregone government income. 

Corporate tax registered the largest declines in 2020, while personal income levies and social security contributions rose on average across the OECD. 

The chunk of tax varies significantly between countries, with Mexico the lowest in the OECD list 17.9% and Denmark highest with 46.5%. 

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