Iconic images from the 1970s show long lines at gas stations across the United States—a group of Arab nations had imposed an oil embargo on the U.S. for supporting Israel during the 1973 Arab-Israeli War. The price of oil nearly quadrupled, causing gas shortages that hit Americans badly, while leaving countries such as Saudi Arabia so rich that they dismantled their tax bureaucracies. In the following decades, Saudi citizens paid virtually no taxes.
That is until two years ago, when Riyadh—along with other neighboring oil autocracies—imposed a new value-added tax of 5 percent on most goods and services. No one really likes paying taxes, let alone people who have never paid them, and many of those countries’ citizens complained that it imposed an unnecessary financial burden. But those governments were in a bind: Global demand for oil had been declining, and they needed to diversify their economies beyond the energy sector.
Since then, thanks to an economic crisis brought on by the coronavirus outbreak, oil demand has fallen further still, with prices at one point even going into negative territory by one measure. Facing worsening budget deficits, the Saudi government has decided to reduce spending and triple the tax it first imposed in 2018. (Neighboring states such as the United Arab Emirates have so far made no plans to increase their own taxes.) But Saudi Arabia isn’t alone in scrambling to find a solution to the consequences of the pandemic. Around the world, countries are proposing new taxes or expanding social safety nets to try to mitigate the worst of the financial strain on citizens. Yet while officials hope that many of these measures are temporary—and seem to have only a short-term recovery in mind—they could, in the long run, fundamentally transform people’s expectations of their government, potentially unleashing major geopolitical shifts in the decades to come.