Global investors are obsessing about borrowing costs, discount rates and inflation risks as the world emerges from the shocking pandemic — but they are also starting to pore over coming corporate tax hikes that could reverse a decades-long decline.
Though no timeline is set, US President Joe Biden has promised to at least partly reverse predecessor Donald Trump’s business tax cuts and lift corporate income tax seven points to 28%. Biden has also injected new momentum into plans for global taxation of digital and e-commerce giants, most of which benefited disproportionately from pandemic lockdowns.
The average corporate tax rate across the developed world is two thirds of what it was 20 years ago. Government debt as a share of output in advanced economies has risen more than 50% over the same period. “Following years of pro-business policies and falling corporate tax rates, the trend may be about to be reversed,” wrote Emmanuel Cau’s equity strategy team at Barclays, flagging tax a medium-term threat to earnings.Cau estimates the 2023 UK corporate tax hike amounts to about a 6% earnings “headwind” for the widest sweep of the large, domestically exposed, listed British companies.
“It is a historical irony that, on leaving the EU, the pro-Brexit UK government has chosen to adopt a more continental-style economic policy,” he said.