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2.1 It is not possible to consider property tax on its own. No tax is an end in itself and it must be looked at in relation to other local and national taxes. The taxation system of a country is subservient to national social and economic aims. The detailed considerations required in the design or administration of any individual tax should not obscure a wider view, informed by a knowledge of history and international experience.

2.2 In historic terms taxes have tended to rise as percentages of gross Domestic Product (GDP). On average the ratios of tax to GDP (the tax ratio) have increased from 25.8 percent in 1965 to 37 percent in 1998 in OECD countries.1 Although this increase has been halted or even reversed in recent years in some countries, the long-term trend has been clearly upwards. There are, however, great national variations. Generally there is a tendency for the developing economies to have lower tax to GDP ratios than the developed economies. Many developing countries have ratios of less than 20 percent. In contrast a number of countries in the OECD have ratios of over 45 percent, for example, Denmark, France, Italy and Sweden. On the other hand the world's two largest economies, United States and Japan, both have ratios of less than 30 percent.

2.3 It is reasonable to suppose that ratios will tend to increase or at least be maintained with increasing expectations and investment in medical services, prospects of greater longevity and larger proportions of pensioners in the population, and with requirements for improved education and skills to enable international competitiveness. With the general trend of decentralisation of public services, governments and people are also looking for more locally based and locally accountable taxes.

2.4 How will the extra revenues be raised? New taxes are not being invented and public sector revenues will come from the same sources tomorrow as they do today. What are the major taxes? How do they compare? What are the long-term trends? For a long-term global view of taxation, this guide uses a conventional classification and simplification of taxes in the following broad groups:

2.5 Income tax is not an easy tax to administer which is why it has been historically a comparative newcomer.2 In the last two centuries income tax rates grew, particularly in times of war, until reaching historically high levels in the 1980s. Since then individual tax rates, particularly those relating to the top slices of income, have fallen. OECD figures show that the share of personal income tax as a proportion of tax revenue has fallen on average in member countries from 30 percent in 1975 to 27 percent in 1998. There are democratic and economic pressures that are likely to inhibit any significant change in the present situation.

2.6 Corporation taxes were once seen as an easy tax target. There were few votes to be lost if corporation taxes were increased. This has now changed as a consequence of the intense international competition to attract business to national or regional locations. Corporation tax rates are a significant factor in decisions by multilateral corporations of where to locate their businesses. This is therefore a major constraint preventing national governments from increasing corporation tax rates to previous levels.

2.7 Social security contributions have tended to rise in response to increasing social benefits and now constitute an average 25 percent share of taxation in OECD countries.

2.8 Consumption taxes as a source of revenue have remained on average constant in OECD countries in proportion to other taxes but the emphasis is now on value added taxes. Most transition countries aspiring to join the EU are adopting value-added taxes in order to comply with EU rules. There are economic, competitive and democratic constraints that governments have to take into account when considering increasing consumption taxation rates.

2.9 Property taxes show a large variation in the ratio of property tax to total tax revenue. If wealth taxes and certain other taxes are included in the definition, property taxes account for more than 10 percent of the total in the UK, United States, Canada, Japan and Korea. Property taxes have, however, seen a long-term decline in relative importance. In 1998 property taxes represented an average 5 percent of tax revenues in OECD countries. In 1975 it was 6 percent while ten years previously it was about 8 percent. In previous centuries taxes on property almost certainly formed the most important source of tax revenue for both national and local taxes.3 The decline in relative importance of property tax and the need to find buoyant, reliable locally based sources of revenue to finance increasingly decentralised services suggest that there is scope for increasing yields.4 As globalisation has given multinational companies opportunities to avoid corporation taxes in a particular country, the importance of 'unavoidable' property taxes has increased.

2.10 To summarise:

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