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by UBS
The content in this infographic was relevant when it was published on 18 June 2020.
Current views may differ.

The pandemic has forced governments around the world into spending at a time when many budgets are already stretched, and regardless of a lack of political appetite for higher taxes or austerity in the short term, there will be a need to pay for the stimulus sooner or later.

In the aftermath of the Global Financial Crisis, taxes as a percentage of GDP rose by an average of one percentage point worldwide, including increases in approximately 70% of OECD countries.

Taxes as a % of GDP
Europe - avg
United States
OECD - avg
40%
35%
30%
25%
20%
15%
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Source: OECD, UBS

At 21%, the US corporate tax rate is well below the OECD average.

Corporate income tax rates
35
30
25
20
15
10
5
0
Central government
Sub-central government
FRA
PORT
AUS
MEX
GER
JPN
NZL
ITA
KOR
CAN
USA
AUT
BEL
CHL
NDL
ESP
GRE
ISR
DEN
NOR
TUR
SWE
CHR
POL
GBR
Source: OECD, UBS
Estimated earnings impact from a reversal to a 28% tax rate
0%
-1%
-2%
-3%
-4%
-5%
-6%
Earnings impact (% of consensus income)
S&P 500
Financials
Industrials
Cons Staples
Cons Disc
Comms Services
Energy
Health Care
Technology
Materials
Real Estate
Utilities
Source: FactSet, UBS. Note: Utilities and REITs pass through taxes via regulated rates and individual dividend income, respectively, so tax impact is assumed to be zero.

President Joe Biden has proposed a 28% corporate tax rate in the US, which would result in a 3.7% hit to S&P 500 earnings, with the Banking, Transport and Retail sectors hurt the most.

Given the narrow Democrat majority in the Senate, and the low level of rates at which public debt can be refinanced, UBS believes tax rates will be raised towards 24%, which should limit this hit to earnings.

European corporate tax rates are mixed. The UK’s are comparatively low but could eventually rise after recovery, given the very large stimulus. France has the highest rate in Europe, and is trying to implement a ‘digital tax’. Accounting for nearly 30% of global equities, Tech and Communication Services are a sizeable potential taxation target.

US opposition to the tax has been a constant, though UBS believes countries may find common ground in the aftermath of Covid-19 if it means new sources of revenue.

Given the magnitude of deficits, governments across the world are likely to look for other new sources – from carbon to sugar and soft drinks – to raise taxes.

In addition, the scope of the stimulus suggests regulatory scrutiny is also likely to rise, meaning income protection and employee rights may see greater emphasis, and environmental commitments such as the continuation of emissions policies could accelerate.

Sectors in focus
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A wave of global sugar taxes would impact Beverages manufacturers.
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Digital businesses may become a particular target for governments looking to pay down debt through higher taxes, impacting Tech Software.
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Sugar, packaging or food waste taxes could be levied on Restaurants if local governments seek out new or enhanced revenue streams.
by UBS

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