KPMG recently released its annual survey of worldwide corporation tax rates. The key finding is that corporation tax rates have continued to fall in 2008. The average corporation tax rate in the 109 countries surveyed was 26 percent. In the OECD, the average was 27 percent (down 11 percent in the last 12 years). In the EU, the average rate is just 23 percent (down from 38 percent in 1996).
All of that is good news for the world economy (and you won't hear that said very often at the moment). Unfortunately, however, it's bad news for Britain. The reason? At 28 percent, Britain's corporation tax rate is higher then the international, OECD and EU averages. Indeed, our tax rate is dramatically higher than some of our nearest competitors – most notably Ireland, where corporation tax is just 12.5 percent.
This is a problem because it discourages corporations from investing in the UK, and encourages corporations that are already based here to move overseas. This costs us both jobs and economic wealth. High corporation taxes also tend to drive up prices for consumers, and keep down wages for workers (since corporations tend to shift the burden of taxes downwards). Needless to say, high rates also divert effort and resources away from production and towards developing tax minimization strategies.
As Matthew Sinclair writes here, all of this means that cutting corporation tax can actually increase revenue as the economy grows and there are more profits to tax. That doesn't matter much to me – the government already spends far too much of our money – but it might make tax cuts an easier pill for the politicians to swallow. With that in mind, what are they waiting for?
