The year 2022, marked by the Russian invasion of Ukraine, saw the prices of many raw materials soar. States had to act to relieve their economies affected by inflation at its highest “in more than ten years”.
In order to help households and businesses cope, “a key element” has been very useful, according to the Organization for Economic Co-operation and Development (OECD): the tax measures decided by OECD members and its main partners, in concert with subsidies, financial transfer policies and price caps for certain essential goods.
In a annual report entitled “tax policy reforms 2023”published this Wednesday, September 13, the OECD notes that the most common tax policies have consisted of reducing VAT rates and excise rates (an indirect tax) on energy products, or even indexing bracket thresholds tax on inflation and to achieve tax rebates and credits.
A budgetary cost
These measures have increased the budgetary cost: the Paris-based institution notes that “although temporary tax cuts are advantageous due to their immediacy and visibility, their often untargeted nature has increased the budgetary cost and affected incentives to reduce energy consumption”, in a context where public debts have been inflated by support plans during the Covid-19 pandemic.
As noted by the OECD, which scrutinized the tax policies implemented in 75 countries, the emergency required supporting households in their consumption of fossil fuels, but the tax measures also concerned the energy transition. These have become “more central” in tax policy over the past decade as calls for the energy transition become more and more pressing.
“Despite high energy prices,” a number of rich countries have simultaneously increased carbon prices in order to support the transition to a low-carbon economy,” writes the OECD. The organization welcomes of the European Union’s recent vote on a new carbon border adjustment mechanism (CBAM), known as the border carbon tax.
At the same time, the institution highlights the implementation in a growing number of countries of a taxation of “superprofits” of companies having benefited from the surge in prices linked to the war in Ukraine, especially in the field of energy, like oil or electricity producers.