Governments are undermining their own revenue generation through contradictory tax policies, trade unions warn in response to the OECD’s Tax Policy Reforms 2025 report.
The OECD report shows encouraging signs that more countries raised corporate tax rates than cut them for the second consecutive year. But the data shows this progress is being undermined by a contradictory approach – whilst governments raise headline rates, they simultaneously expand tax incentives that erode the actual tax base. Tax Policy Reforms 2025 confirms base-narrowing measures remained common in 2024, particularly for research and development, clean technologies, and “strategic” sectors.
This dual approach directly weakens revenue capacity at a time when public investment needs are greatest. By expanding exemptions even as statutory rates rise, governments allow profitable companies to avoid effective taxation. This is precisely what the OECD documents, noting that low-taxed profits persist even within high-tax jurisdictions.
This revenue erosion comes at a critical time when governments face mounting pressure to invest in climate action, digital infrastructure, social protection systems, and affordable housing. The contradiction between raising headline rates whilst expanding exemptions undermines the fiscal capacity needed for the green transition and essential public services that workers and their families depend on.
Against this backdrop of corporate base erosion, TUAC welcomes evidence of renewed commitment to progressive taxation at the personal level. More jurisdictions raised top personal income tax rates and capital gains taxes than in previous years, often specifically to generate revenue and enhance fairness. This demonstrates growing recognition that progressive taxation is essential for funding the public services workers and their families rely on, yet governments continue allowing profitable corporations to escape their fair share through expanding exemptions.
Workers need quality public investment in health, education, and green infrastructure - not policies that let profitable companies dodge their responsibilities whilst cutting taxes for the wealthy.
Trade unions call for comprehensive reform that tackles both corporate base erosion and the broader revenue challenge. TUAC demands higher effective corporate tax rates and an end to new base-narrowing exemptions as crucial tools for addressing inequality.
Image credit: OECD
