Tax systems play an important role in encouraging investment in education and skills, and in ensuring that investments in skills deliver a healthy financial return for both students and governments, according to a new OECD report.
Taxation and Skills highlights the role of tax systems in providing the right financial incentives to ensure that governments, individuals, and firms all share the costs and the benefits of investments in skills.
The report finds that, at current wages and tax levels, significant net returns are earned by students on their investments in skills. Equally, on average across the OECD, the costs of government investment in skills are recouped through higher future income tax revenue – even without accounting for other benefits such as faster growth, lower unemployment and improved well-being.
Taxation and Skills finds that tax systems reduces tertiary students' incentives to enter higher education by 20% on average across the OECD and by nearly 40% in some countries. This is largely as a result of the impact of higher labour taxes on the higher wages earned by those with better skills.
While many countries offer tax breaks to help firms invest in physical capital such as new technologies and R&D, this report highlights that more can be done to help firms and students invest in the human capital that citizens need to gain quality jobs in the modern economy. In most countries, tax breaks are offered to citizens to upskill in their current careers, but not to those who need to re-train for new careers when existing jobs disappear.
"It is crucial that our tax systems not only support investment in physical capital, but also in the human capital of our citizens", said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. "Investing in skills makes financial sense for both students and governments. Failing to invest in skills today will not only hamper the economic participation of individuals and impede productivity growth, but will also have a negative impact on public finances in the future".
Drawing on the experience of 29 OECD countries, the report provides some concrete examples of best practices to incentivise both younger students and older workers to invest in skills. For example:
- In Australia, a system of income-contingent loans allows students from low-income backgrounds to finance their education and do so in a way that ensures that governments also earn a relatively high return on the costs of educating their citizens.
- In Canada, tax credits for skills can be carried forward so that low-income students receive the same tax support for skills as high-income students.
Bron: OECD
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