OECD Says Era of Lower Taxes Is Over as Governments Move to Raise Revenue

The Organisation for Economic Cooperation and Development said Friday that the global trend toward lower taxation has reversed and “has now solidified,” as governments move to mobilise revenue to meet rising debt burdens and new spending demands.

The Paris-based OECD, which represents 38 mostly high-income countries, said jurisdictions that cut taxes during the COVID-19 pandemic began rolling back relief about two years ago and are increasingly using a mix of tax increases and narrower reliefs. The group cited high public debt and emerging spending requirements related to climate change, ageing populations and in some cases increased defence costs as drivers of the shift.

The OECD report noted that several countries have already implemented higher levies or tightened loopholes. It singled out recent measures in the United Kingdom, where the Labour government’s last budget included changes to capital gains tax, employer national insurance, inheritance tax and a VAT change affecting private schools. The report said those measures amounted to about £40 billion in revenue-raising steps.

UK officials are preparing for further fiscal choices after the government identified a potential shortfall in public finances. Chancellor Rachel Reeves faces pressure to fill a projected black hole estimated at up to £50 billion. Areas mentioned in public reporting as possible sources of additional revenue include pension tax adjustments, stamp duty, rental income levies, bank profit taxes and further freezes to income tax thresholds.

Labour entered office in 2024 with a pledge not to increase taxes on “working people,” a definition the party says covers income tax, national insurance and value-added tax. Ministers have defended the decision to raise employer national insurance, saying it does not directly increase employee payslips, although business groups and some economists have criticised the move and argued it raises hiring costs.

The Confederation of British Industry’s chief executive, Rain Newton-Smith, has urged the government to reconsider strict adherence to its pre-election tax commitments and to avoid further measures that primarily burden businesses. Some business leaders and market analysts argue that additional levies on companies could weigh on investment and hiring.

There is also debate within economics circles about the balance between tax increases and spending restraint. In a client note this week, Goldman Sachs analysts said historical evidence suggests spending-based fiscal consolidations generally improve deficits more sustainably than revenue-led adjustments, but they acknowledged that politically sensitive spending cuts are difficult to implement. As a result, the bank said it expects “sizeable tax increases” in some countries.

The OECD report provides a wider international context for the U.K. debate. It documents a broad-based reversal of pandemic-era tax reliefs across advanced economies and some emerging markets, and it notes that many governments have broadened tax bases or strengthened enforcement as part of revenue mobilisation strategies.

Policy makers face competing pressures: the need to stabilise public finances and fund long-term priorities such as decarbonisation and aged-care systems, against concerns that higher taxes or further burdens on businesses could damp demand, slow growth and reduce employment. The OECD’s findings underline that those trade-offs are becoming central to fiscal debates in capitals across the OECD membership.

Markets and corporate leaders will be watching forthcoming budget statements and fiscal updates for details on the shape and scope of future measures. The OECD report signals a structural shift in many countries’ fiscal approaches, moving away from the sharp tax relief of the pandemic era toward policies aimed at raising sustainable revenue to meet evolving public commitments.