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‘Tax wedge’ falls in OECD countries

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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.

The report, ‘Taxing Wages 2019’ shows the ‘tax wedge’ (defined as total personal income tax and social contributions paid by employees and employers, minus cash benefits, as a proportion of the employer’s labour costs) stood at 36.1% in 2018. This represents a fall of 0.16% from 2017, 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 following major reforms: Estonia (2.54%), the US (2.19%), Hungary (1.11%) and Belgium (1.09%). Small increases occurred in 22 countries, with small decreases seen in the remaining 10 OECD countries.

In 2018, the OECD net personal average tax rate was 25.5%, remaining broadly stable over recent years.

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 increase in the tax wedge for this family type in 2018 was in Poland (10.3%). There were no other increases over 1%. The largest decreases were in New Zealand (4.5%), Lithuania (2.5%) and Estonia and the US (2.4%).

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.


Issue: 1440
Categories: News