Abstract:
The massive tax reform during the 1980s is without precedent in fiscal history. Major restructuring of the tax system dominated tax policy-making in many countries in the world, and it was marked by the revitalization of the personal income tax and greater reliance on spending as a tax base. In North America, Canada cut federal income tax rates and replaced the manufacturers’ sales tax by a value-added tax. The United States also introduced a series of tax measures, with the Tax Reform Act of 1986 being the most noteworthy. Australasia has been particularly prominent in tax reform. Australia cut marginal tax rates, introduced a fringe benefits tax, and broadened the sales tax base. The most extensive change in tax reform occurred in New Zealand, which has probably undergone the most complete tax transformation of any country.
One outstanding feature of tax reform in both developed and developing countries has been the adoption of the value-added tax (VAT). Almost unknown twenty-five years ago, twenty-three of the twenty-five Organization for Economic Co-operation and Development (OECD) countries have a VAT. The two countries that do not levy a VAT are the United States, which has various retail sales taxes at the subnational level, and Australia, which has a wholesale sales tax. For many countries a new VAT was a significant part of the 1980s tax reform, although for some countries the introduction of VAT preceded the tax reform of the 1980s. While there were significant differences among countries in their degree of success, world-wide tax reform was remarkable for the common elements.