Taxing Wages 2006/2007: 2007 Edition

New Material | Table of contents
Excerpt | How to Obtain this Publication | Previous Editions

Corrigenda to this publication may be found at www.oecd.org/publishing/corrigenda

1. New material

Unique information on income tax, social security contributions and cash benefits as they affect typical families.

2 Table of contents

Overview
Special Feature: Tax Reforms and Tax Burdens 2000-2006
Part I: International Comparisons
Part II: Tax Burden Trends 2000-2007
Part III: Country Details, 2007
Part IV: Methodology and Limitations

Download detailed table of contents

3. Excerpt

This annual publication provides details of taxes paid on wages in all thirty member countries of the OECD. The information contained in the Report covers the personal income tax and social security contributions paid by employees and their employers, and cash benefits received by families. The objective of the Report is to illustrate how personal income taxes and social security contributions are calculated and to examine how these levies and cash family benefits impact on net household incomes. The results also allow quantitative cross-country comparisons of labour cost levels and of the overall tax and benefit position of single persons and families.

The Report shows the amounts of taxes, social security contributions and cash benefits for eight family-types, which differ by income level and household composition. It also presents the resulting average and marginal tax rates. Average tax rates show that part of gross wage earnings or total labour costs which is taken in tax (before and after cash benefits) and social security contributions. Marginal tax rates show the part of an increase of gross earnings or total labour costs that is paid in these levies.

The focus of the Report is the presentation of accurate estimates of the tax/benefit position of employees in 2007. In addition, the Report shows definitive data on the tax/benefit position of employees for the year 2006 and shows tax burdens for the period 2000-2007.

This excerpt from the full Report provides an overview of the results for 2007. It includes tables and graphs comparing results by country. A full version of the Report is available on line at new.sourceOECD.org.

Review of results for 2007

Table O.1 presents the total tax wedge between total labour costs to the employer and the corresponding net take-home pay for single workers without children at average earnings levels in 2007 and analyses the change in the tax wedge between 2006 and 2007 for all OECD countries. The tax wedge varied widely across OECD countries (column 1): it exceeded 50 per cent in Belgium, Hungary and Germany and was lower than 20 per cent in Korea and Mexico. The increase between 2006 and 2007 of the tax wedge of an average worker (column 2) varied between 2.5 percentage points in Hungary and -2.4 percentage points in Sweden. Iceland (-1.2 percentage points), Germany (-1.1 percentage point) and Korea (+1.4 percentage point) were the only other OECD member countries in which the changes in the tax wedge did not fall in the range of plus or minus one percentage point. The tax wedge has increased in fifteen OECD member countries and fell in eleven. The reduction in the tax wedge is entirely or almost entirely driven by the reduction in income taxes in Australia, Finland, France, Ireland and Sweden. In Iceland and Canada, the three components of the tax wedge have decreased. In some countries, changes in income taxes are offset by changes in social security contributions as, for instance, in Germany, Poland and the Netherlands. To a large extent, the increase in tax wedges also reflects increases in income taxes. In five countries (Austria, the Czech Republic, Greece, Switzerland and New Zealand), the increase in the tax wedge is entirely driven by the increase in income taxes. In three other countries (Korea, Luxembourg, and the UK), all three components of the tax wedge have increased (although the increases have been very small in the UK). In other countries (for instance in Norway and Japan) increases in income taxes are partly offset by decreases in (employee or/and employer) social security contributions.

The mix of taxes paid out of total labour costs varies greatly between countries. Table O.2 and Figure O.1 decompose the tax wedge in the income tax, the employee and the employer social security contributions. The portion of labour costs paid in personal income tax is less than five per cent in Mexico (3.4 per cent) and Korea (4.2 per cent); whereas it exceeds 30 per cent in Denmark (30.2 per cent). The portion representing employee social security contributions also varies widely, ranging from zero per cent in Australia and New Zealand to over 18.5 per cent in the Netherlands and Poland. Employers pay 29.6 per cent of total labour costs in social security contributions (including payroll taxes where applicable) in France, 25.9 per cent in the Czech Republic and 25.7 per cent in Hungary. In contrast, employers in New Zealand are not subject to these levies, while in Denmark employer contributions are negligible (0.6 per cent).

The mix of taxes paid out of gross wage earnings varies greatly between countries. Figure O.2 provides a graphical representation of the personal average tax rate decomposed between income tax and employee social security contributions. At the average earnings level, single workers without children pay over 40 per cent of their annual wages in personal income tax and employee social security contributions in Germany, Belgium, and Denmark. In Ireland, Korea and Mexico, the personal average tax rate was below 15 per cent. Average workers in Australia and New Zealand pay only income tax while their counterpart in Poland is paying almost entirely social security contributions.

Many OECD countries provide a fiscal benefit to families with children relative to single individuals through advantageous tax treatment and/or cash transfers. Figure O.3 provides the burden of income tax plus employee social security contributions less cash benefits for single individuals at 100 per cent of the earnings of an average worker and for a married one-earner couple with two children at the same earnings level. The savings realised by a one-earner married couple are greater than 20 per cent of earnings in the Czech Republic, Luxembourg and Ireland. In contrast, there is no difference in Mexico and Turkey. The burden of income tax plus employee social security contributions less cash benefits for married one-earner couples is higher in Greece because employers pay higher wages to married couples with children, which implies that these employees will have to pay more taxes. It is also interesting to note that when cash benefits are taken into account, married one-earner couples face a negative tax burden in Ireland and the Czech Republic because cash benefits exceed the income tax and employee social security contributions.

Special Feature: Tax reforms and tax burdens 2000-2006

The Special Feature in the 2007 edition of Taxing Wages studies the tax burden changes since the year 2000, building on a detailed graphical representation of tax burden measures across a wide range of wage levels. In discussing observed tax burden changes, the Special Feature distinguishes between the effects of legislative tax policy initiatives on the one hand and the impact of changing earning levels, either due to inflation or real earnings growth, on the other hand (Figure S.1). The analysis shows that without counter-balancing policy measures, the combination of inflation and real earnings growth would have led to significant tax-wedge increases in almost all OECD countries. Most OECD countries do employ some form of adjustments, such as indexing tax band limits for inflation, in order to prevent large tax-burden changes as a result of inflation or real earnings growth. These adjustments are, however, incomplete or infrequent in most countries. As a result, the impact of tax reforms that aim at lowering tax burdens in a given year can to a large extent be offset by fiscal drag effects accumulated over extended periods.

4. How to obtain this publication

Readers can access the full version of "Taxing Wages 2006/2007: 2007 Edition" choosing from the following options:

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 5. Previous editions of Taxing Wages

• Taxing Wages 2005-2006: 2006 Edition
• Taxing Wages 2004-2005: 2005 Edition