New Zealand is ranked second in the Tax Foundation’s International Tax Competitiveness Index (ITCI).
The Tax Foundation’s International Tax Competitiveness Index (ITCI) measures the degree to which the 34 OECD countries’ tax systems promote competitiveness through low tax burdens on business investment and neutrality through a wellstructured tax code. The ITCI considers more than forty variables across five categories: Corporate Taxes, Consumption Taxes, Property Taxes, Individual Taxes, and International Tax Rules.
The ITCI attempts to display not only which countries provide the best tax environment for investment, but also the best tax environment in which to start and grow a business.
The ITCI finds that Estonia has the most competitive tax system in the OECD. Estonia has a relatively low corporate tax rate at 21 percent, no double taxation on dividend income, a nearly flat 21 percent income tax rate, and a property tax that taxes only land (not buildings and structures).
· France has the least competitive tax system in the OECD. It has one of the highest corporate tax rates in the OECD at 34.4 percent, high property taxes that include an annual wealth tax, and high, progressive individual taxes that also apply to capital gains and dividend income.
· The ITCI finds that the United States has the 32nd most competitive tax system out of the 34 OECD member countries.
· The largest factors behind the United States’ score are that the U.S. has the highest corporate tax rate in the developed world and that it is one of the six remaining countries in the OECD with a worldwide system of taxation.
· The United States also scores poorly on property taxes due to its estate tax and poorly structured state and local property taxes
· Other pitfalls for the United States are its individual taxes with a high top marginal tax rate and the double taxation of capital gains and dividend income
Taxes are a crucial component of a country’s international competitiveness. In today’s globalized economy, the structure of a country’s tax code is an important factor for businesses when they decide where to invest. No longer can a country tax business investment and activity at a high rate without adversely affecting its economic performance. In recent years, many countries have recognized this fact and have moved to reform their tax codes to be more competitive. However, others have failed to do so and are falling behind the global movement.
The United States provides a good example of an uncompetitive tax code. The last major change to the U.S. tax code occurred 28 years ago as part of the Tax Reform Act of 986, when Congress reduced the top marginal corporate income tax rate from 46 percent to 34 percent in an attempt to make U.S. corporations more competitive overseas. Since then, the OECD countries have followed suit, reducing the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today. The result: the United States now has the highest corporate income tax rate in the industrialized world.
While the corporate income tax rate is a very important determinant of economic growth and economic competitiveness, it is not the only thing that matters. The competitiveness of a tax code is determined by several factors. The structure and rate of corporate taxes, property taxes, income taxes, cost recovery of business investment, and whether a country has a territorial system are some of the factors that determine whether a country’s tax code is competitive.
Many countries have been working hard to improve their tax codes. New Zealand is a good example of one of those countries. In a 2010 presentation, the chief economist of the New Zealand Treasury stated, “Global trends in corporate and personal taxes are making New Zealand’s system less internationally competitive.”1
In response to these global trends, New Zealand cut its top marginal income tax rate from 38 percent to 33 percent, shifted to a greater reliance on the goods and services tax, and cut their corporate tax rate to 28 percent from 30 percent. This followed a shift to a territorial tax system in 2009. New Zealand added these changes to a tax system that already had multiple competitive features, including no inheritance tax, no general capital gains tax, and no payroll taxes.2
In a world where businesses, people, and money can move with relative ease, having a competitive tax code has become even more important to economic success. The example set by New Zealand and other reformist countries shows the many ways countries can improve their uncompetitive tax codes.3 . . .
Voters rejected the five new taxes a coalition of the left would have imposed on us and this confirms their wisdom.
Responding to Labour’s plans to introduce a number of taxes and increase spending on the National Health Service, Jonathan Isaby, Chief Executive of the TaxPayers’ Alliance, said:
“This was sixth form socialism of the most uninspiring kind. It is lazy and dangerous to implement populist measures that won’t raise the money politicians promise. Windfall taxes will hurt pensioners who rely on stable returns for a comfortable retirement, sin taxes hit the poorest hardest, and a Mansion Tax would be a vindictive gesture that will eventually find its way down the property ladder to hit much less expensive homes, too.
“If we want more money for essential services and cancer drugs in the NHS then there must be a serious and sustained war on wasteful spending, alongside a rigorous reassessment of priorities.”
A competitive tax code is an important ingredient in economic success.
Parties which think more taxes are the answer have asked the wrong question.