Reforms in a few countries drive a decline in average OECD labour taxes

trump 2019_

(Unsplash)

This article is brought to you in association with OECD.


Income tax and social security contributions declined slightly for the average worker across the OECD in 2018, driven by major reforms in a handful of countries, according to a new OECD report.

Taxing Wages 2019 shows that the “tax wedge” – total taxes on labour costs paid by employees and employers, minus family benefits, as a percentage of the labour cost to the employer – was 36.1% in 2018. This represents a fall of 0.16 percentage points from 2017, and is the fourth consecutive annual decrease in the tax wedge on the average OECD worker.

The decline between 2017 and 2018 was caused by  large decreases in four countries: Estonia (2.54 percentage points), the United States (2.19 percentage points), Hungary (1.11 percentage points) and Belgium (1.09 percentage points). Even though the tax wedge on the average worker across the OECD declined between 2017 and 2018, small increases in the tax wedge were actually observed in 22 countries, or nearly two-thirds of the OECD. At the same time, small decreases in the tax wedge were observed in the remaining 10 OECD countries.

In the four countries where the largest decreases in the average tax wedge were observed, these reductions resulted from major reforms. In Estonia and the United States, the decreases were due to income tax reforms, whereas in Hungary and Belgium they resulted from reductions in employer social security contributions.

Taxing Wages 2019 also considers the net personal average tax rate, which measures the income tax and social security contributions paid by employees, minus any family benefits received, as a share of gross wages. In 2018, the OECD average rate was 25.5%. This OECD-wide average rate, calculated for a single person with no children earning the average wage, has remained stable in recent years, even though this rate varies considerably among countries: ranging from below 15% in Chile, Korea and Mexico to over 35% in Belgium, Denmark and Germany.

The 2019 edition of Taxing Wages also includes a Special Feature that looks at the taxation of the median worker in OECD countries, comparing this to the taxation of the average worker. In all OECD countries, the median worker has a lower wage than the average worker, due to higher differentials at the upper end of the income distribution. On average, the median worker earns 80.8% of the average wage and consequently faces a lower average tax wedge, at 34.3% compared to 36.1% for the average worker. This difference is primarily due to lower income taxes. However, the report shows that while providing a more comparable point in the wage distribution across countries, the median wage is difficult to calculate due to data availability, and the differences are not significant for most countries.

Key findings

Tax wedges for single people and families with children

  • In 2018, the highest average tax wedges for single workers with no children earning the average national wage were in Belgium (52.7%), Germany (49.5%), Italy (47.9%), Austria and France (47.6%). The lowest were in Chile (7%), New Zealand (18.4%) and Mexico (19.7%).
  • The highest tax wedge for one-earner families with two children at the average wage in 2018 was in France (39.4%). Austria, Belgium, Finland, Greece, Italy, Sweden and Turkey also had tax wedges over 37%. For this family type, New Zealand had the lowest tax wedge (1.9%), followed by Chile (7.0%) and Switzerland (9.8%).
  • The OECD average tax wedge for the one-earner couple has remained flat for the last two years, at 26.6%. The largest increases in the tax wedge for this family type in 2018 were in Poland (10.3 percentage points). There were no other increases over one percentage point. The largest decreases were in New Zealand (4.5 p.p.), Lithuania (2.5 p.p.) and Estonia and the United States (2.4 p.p.).
  • The tax wedge for one-earner families with children is lower than for single people without children in all OECD countries except Chile and Mexico, where tax levels are the same for both. The gap is over 15% of labour costs in Belgium, Canada, the Czech Republic, Germany, Ireland, Luxembourg, New Zealand and Slovenia.

Net personal average tax rates (NPATR) for single people and families

  • In 2018, the highest average NPATR for single workers with no children earning the average wage were in Belgium (39.8%), Germany (39.7%) and Denmark (35.7%). The lowest were in Chile (7%), Mexico (10.2%) and Korea (14.9%). The OECD average fell by 0.16 percentage points to 25.5%.
  • The average NPATR for one-earner families with children was 14.2% in 2018. The highest NPATRs for one-earner families with two children at the average wage were in Turkey (26.2%) and Denmark (25.2%). The lowest NPATRs were in the Czech Republic (0.2%), Canada and Estonia (both 1.8%).

Special Feature

  • The median wage refers to the worker at the 50th percentile of the wage distribution, whereas the average wage is the sum of full-time wages divided by the number of workers. The average is therefore more influenced by differentials at the upper end of the wage distribution.
  • The average tax wedge on median workers in 2017 ranged from 52.0% in Belgium to 7% in Chile. In 21 countries, the median worker faced a tax wedge of between 30% and 45%.
  • The average tax wedge for the median worker is lower than the average in all but two countries (Hungary and Chile) although changes are significant for only a few countries where the lower level of median wage resulted in reductions in allowances/employer SSCs and lower marginal personal income tax rates (Turkey, Luxembourg, Portugal, Italy, Israel and Ireland).

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

German stock market is not affected by the Greek debt revolution while Athens is running out of time

Merkel had it her way with the refugees & immigrants but can Greece and Turkey deliver?

Summer pause gives time to rethink Eurozone’s problems

UN and partners appeal for $920 million to meet ‘dire needs’ of Rohingya refugees

Future fit: 3 ways fashion can be more sustainable

Better ID card security to curb document fraud

Monday’s Daily Brief: biodiversity and forests, labour and road safety, women’s rights, and fallen UN staff remembered

The European Parliament hemicycle in Strasbourg (Copyright: European Union, 2017 / Source: EC - Audiovisual Service / Photo: Mauro Bottaro)

EU Parliament sends controversial copyright law reform back to discussion

Industrial products: Lifting the last impediments in the EU single market

EU and New Zealand launch trade negotiations

Four major resources for new European young entrepreneurs

Digital development: technology-enabled, but human-centric

This is what the gender pay gap looks like in eight countries

The Stray

Why people with disabilities are your company’s untapped resource

What brands get wrong about China – and how to put it right

Global Talent – Professional Internships

It’s just electronic cigarette, don’t worry?

What next for Europe? Three (completely) different Davos views

UN chief welcomes re-opening of key Gaza border crossing

A silent killer: the impact of a changing climate on health

Japan should reform retirement policies to meet challenge of ageing workforce

Facts and prejudices about work

“No labels for entrepreneurs!”, a young business leader from Italy cries out

Electronic Cigarettes: Are they really as safe as we think?

TTIP’s 11th round major takeaways and the usual “leaked” document

Germany’s strong anti-bribery enforcement against individuals needs to be matched by comparably strong enforcement against companies

UN rights chief slams ‘unconscionable’ US border policy of separating migrant children from parents

Why this city is paying people to move there

The remote doctor, can it ever work?

This new form of currency could transform the way we see money

These are the fastest trains in the world

1 in 4 Africans had to pay a bribe to access public services last year

Antitrust: Commission fines Google €1.49 billion for abusive practices in online advertising

On International Youth Day the European Youth Forum calls for true youth participation

Want a fairer society? This economist says he has the answer

Permanent structured cooperation (PESCO) on the table of NATO Defense Ministers amid US concerns

Close to final agreement on the EU Banking Union

3 things to know about India’s space programme

Rising insecurity in Central Africa Republic threatens wider region, Security Council told

EU and Australia launch talks for a broad trade agreement

A Sting Exclusive: “Paris is the moment for climate justice”, Swedish MEP Linnéa Engström claims from Brussels

Parliament toughens its position on banking union

UNICEF warns of ‘lost generation’ of Rohingya youth, one year after Myanmar exodus

Central banking in times of complexity

Climate change: ‘A moral, ethical and economic imperative’ to slow global warming say UN leaders, calling for more action

Draghi’s 2018 compromise: enough money printing to revive inflation and check euro ascent

Nordic noir: The unhappiness epidemic affecting young people in the world’s happiest countries

Trump blocks US warmongers from bombing Iran

Trump ostracized by his party and world elites but still remains in course; how can he do it?

Capital Markets Union: Making it easier for smaller businesses to get financing through capital markets

Further reforms can foster more inclusive labour markets in The Netherlands

Afghanistan: UN ‘unequivocally condemns’ attack in Kabul

MEPs criticise “America first” policy

An economist explains why women are paid less

Madagascar: UN chief commends leaders, State institutions following ‘historic milestone’ election

There is a forgotten solution to climate change that we must invest in – nature

Job vacancy data reveal better prospects for Britain, stagnation in Eurozone

Commission adopts €4 billion investment package for infrastructure projects across 10 Member States

EU fundamental rights under threat in several member states

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s