New data show that across OECD countries the average tax and social security burden on employment incomes increased by 0.1 of a percentage point to 35.6 per cent in 2012. It increased in 19 out of 34 countries, fell in 14, and remained unchanged in 1.
The increases were largest in the Netherlands, Poland and the Slovak Republic (mainly due to increased rates and other changes to employer social security contribution) as well as Spain and Australia (due to higher statutory income tax rates).
This follows substantial increases in 2011. Since 2010, the tax burden has increased in 26 OECD countries and fallen in 7, partially reversing the reductions between 2007 and 2010.
Over the past two years, income tax burdens have risen in 23 out of 34 countries, largely because a higher proportion of earnings was subject to tax as the value of tax free allowances and tax credits fell relative to earnings. In 2012, only 6 countries had higher statutory income tax rates for workers on average earnings than in 2010.
This dataset will be available in Taxing Wages 2013 (to be published on 10 May 2013). The report provides details about the taxation of employment incomes and the associated costs to employers for different household types and at different earnings levels on an internationally comparable basis – key factors in whether individuals seek employment and businesses hire workers.
The tax burden is measured by the ‘tax wedge as a percentage of total labour costs’ – or the total taxes paid by employees and employers, minus family benefits received, divided by the total labour costs of the employer. Taxing Wages also breaks down the tax burden between personal income taxes (PIT), including tax credits, and employee and employer Social Security Contributions (SSC).
Key Taxing Wages results in 2012 included:
•The highest average tax burdens for childless single workers earning the average wage in their country were observed in Belgium (56.0%), France (50.2%), Germany (49.7%) and Hungary (49.4%). The lowest were in Chile (7%), New Zealand (16.4%) and Mexico (19.0%). (See table 1 in excel).
•The average tax burden for those earning the average wage increased by a 0.5 percentage point rise in 2011 and 0.1 percentage points in 2012 to reach 35.6 per cent. This followed a decline from 36.1 to 35.0 per cent between 2007 and 2010. (See table 2 in excel).
•The main contributors to the 2012 increase in the average OECD total tax wedge were changes to employer social security contributions, with increases in the contribution rate in 8 OECD countries, most notably Poland (+1.2 percentage points), the Slovak Republic (+0.8) and the Netherlands (+0.6).
•In 13 of the 19 countries with an increased tax wedge in 2012, the PIT wedge also rose. The tax burden increases in Spain (+1.4 percentage points) and Australia (+0.6) were respectively due to higher income tax rates and the introduction of a temporary additional levy to finance post-cyclone reconstruction. Changes to PIT were the primary factor in where the tax burden fell - the largest decrease was in Portugal (-1.3 percentage points) where there was a reduction in the surtax rate.
•The highest tax wedges for one-earner/two children families at the average wage were in France (43.1%), Greece (43.0%), Belgium (41.4%) and Italy (38.3%). New Zealand had the smallest tax wedge for these families (0.6%), followed by Ireland (6.4%), Chile (7%), and Switzerland (9.5%). The average for OECD countries was 26.1%. (See table 3 in excel).
•Due to the abolition of tax allowances for dependent children, Japan saw the largest increase in the tax burden for one earner families with children (+2.4 percentage points) compared with a 0.3 percentage points increase for the single average workers.
•In all OECD countries except Mexico and Chile, the tax wedge for families with children is lower than that for single individuals without children. The differences are particularly large in the Czech Republic, Luxembourg, Germany, Hungary, Ireland, New Zealand and Slovenia.