Analyse des politiques fiscales

Taxing Wages: tax burden on labour income in 2014 and recent trends

 

A. The tax wedge overview for an average single worker in the OECD in 2014

Tax wedge components as a % of labour costs1 in 2014

Tax wedge 2014 chart‌‌

The tax wedge between total labour costs to the employer and the corresponding net take-home pay for average single workers without children in OECD countries varied between Belgium (56%) and Chile (7%) in 2014. The tax wedge was around 50% in Austria (49.4%), Germany (49.3%), Hungary (49.0%), France (48.4%) and Italy (48.2%), and less than 20% in Mexico (19.5%) and New Zealand (17.2%).

 

The OECD average tax wedge was 36.0% of total labour cost in 2014.

 

  • The percentage of labour costs paid in income tax varies considerably within OECD countries.  The lowest figures are in Chile (zero) and Korea (4.6%).  The highest values are in Denmark (35.6%), with Australia, Belgium and Iceland all over 20%.  
  • The percentage of labour costs paid in employee social security contributions also varies widely ranging from zero in Australia and New Zealand to 17.1% in Germany and 19% in Slovenia. 
  • Employers in France pay 27.7% of total labour costs in social security contributions, the highest amongst OECD countries.  The corresponding figures are also more than 20% in ten other countries - Austria, Belgium, the Czech Republic, Estonia, Greece, Hungary, Italy, the Slovak Republic, Spain and Sweden.
  • As a percentage of labour costs, the total of employee and employer social security contributions exceeds 20% in more than half of the OECD countries. It also represents one-third of total labour costs or more in eight OECD countries: Austria, Belgium, the Czech Republic, France, Germany, Greece, Hungary, and the Slovak Republic.
Note: Single individual without children at the income level of the average worker.1. Includes payroll taxes where applicable.
Sources: country submissions, OECD Economic Outlook Volume 2014 (No. 96).
 

B. The OECD average tax burdens on labour income continued to rise in 2014

Changes in OECD tax wedge components between 2013 and 2014

‌‌Changes in the tax wedge between 2013-2014

The OECD average tax wedge increased by 0.1 percentage point from 35.9% to 36.0% between 2013 and 2014. This followed rises of 0.5, 0.1 and 0.2 percentage points in the three previous years.

Personal income tax was the major factor of the increase (+0.07 percentage points). Social security contributions also contributed to the increase in the tax burden by 0.02 percentage points for the employee and 0.01 percentage point for the employer: “Annual change of tax wedge components between 2013 and 2014”.

Note: Single individual without children at the average wage level.
1. Includes payroll taxes.
Sources: country submissions, OECD Economic Outlook Volume 2014 (No. 96).

 

  • The average personal income tax as percentage of total labour costs increased in 23 countries (Australia, Austria, Canada, the Czech Republic, Estonia, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Poland, the Slovak Republic, Slovenia, Spain, Switzerland and the United States). It increased the most in Ireland (+1.13 percentage points) as a result of frozen income tax schedule and basic tax reliefs.
  • The average employee social security contributions as percentage of total labour costs increased in 8 countries (Belgium, Canada, Denmark, Finland, France, Japan, Korea and Norway). It increased the most in Norway (+0.35 percentage points) due to an increase in the rates for the contributions to the National Insurance Scheme from 7.8% to 8.2%.
  • The average employer social security contributions as percentage of total labour costs also increased in 8 countries (Australia, Finland, Israel, Japan, Korea, Mexico, the Netherlands and Turkey). It increased the most in the Netherlands (+0.83 percentage points) due to increases in contribution rates for the general unemployment fund (from 1.7% to 2.15%) and invalidity (from 5.19% to 5.98%) on earnings at the average wage level.

C. Tax wedge trends for the average single worker since 2007

Changes in OECD tax wedge components between 2007 and 2014

‌‌‌Tax wedge comparison 2007-2014

The OECD average tax wedge as percentage of total labour cost for those earning the average wage.

  • increased by 0.1 percentage points from 35.9 to 36.0% between 2013 and 2014,
  • increased by 0.9 percentage points from 35.1 to 36.0% between 2010 and 2014,
  • previously declined by 1 percentage point from 36.1 to 35.1% between 2007 and 2010

Between 2007 and 2010, the tax wedge decreased in 23 OECD countries and increased in 10. The largest decreases were in Hungary (-7.9 percentage points), Turkey (-5.4 percentage points), Israel (-4.2 percentage points) and New Zealand (-4.1 percentage points): "Tax wedge annual change between 2007 and 2010".

Note:Single individual without children at the average wage level.                
2. Includes payroll taxes.
Sources: country submissions, OECD Economic Outlook Volume 2014 (No. 96).

 

 

The tax wedge decline was mostly due to lowered PIT burden:

  • Reduced statutory tax rates in 5 countries (Israel, Finland, Canada, Austria and Norway).
  • Tax schedules were extended with additional lower income brackets and tax rates in Greece, New Zealand and Mexico. The medium tax bracket was suspended in Denmark. In Australia, income thresholds were increased and consequently income bracket scales broadened.
  • Tax allowances and credits increased relative to earnings in 9 countries (Hungary, Sweden, Israel, Finland, the Slovak Republic, Switzerland, the United Kingdom, Germany and Portugal) due to tax relief reformed schemes or increased basic amounts.
  • The average worker tax burden was also alleviated by tax credits or universal cash transfers that were introduced during that period in Denmark (“Green Check”), Luxembourg (“wage earner refundable tax credit”) and Turkey (“Minimum Living Relief”).

Between 2010 and 2014, the tax wedge rose in 23 OECD countries and fell in 10, partially reversing the reductions between 2007 and 2010: "Tax wedge annual change between 2010 and 2014".

PIT was the main factor in the OECD tax wedge increase between 2010 and 2014. PIT burdens rose in 24 out of 34 countries between 2010 and 2014, 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. Only 7 countries (Australia, Denmark, Greece, Ireland, the Netherlands, Portugal and Spain) increased their statutory income tax rates for workers on average earnings. Surtaxes introduced during that period were still in place at the end of 2014 in 2 countries:

  • In Japan, taxpayers have been required to file tax returns and make tax payments for additional 2.1% of the base income taxes from 2013 through 2037 annually together with the regular income tax of respective years.
  • In Portugal, a surtax was introduced in 2011 and re-introduced in 2013 for taxable income above the annual national minimum wage, with a tax credit for dependents.

D. Tax wedge for families with children

The OECD average tax wedge for a one earner couple with two children was 26.9% of the total labour cost in 2014. This figure was 9.1 percentage points lower than the one observed for the individual without children: "Comparison of total tax wedge by family type". In fact, many OECD countries provide a fiscal benefit to the former through advantageous tax treatment and/or cash transfers.

Tax wedge by family type in 2014

‌‌Tax wedge by family type for 2014

Notes:
Countries ranked by decreasing tax wedge of the one earner couple with two children.
The households are at the average wage level.
Sources: country submissions, OECD Economic Outlook Volume 2014 (No. 96).

 

In 2014, the highest tax wedges for one earner couples with two children at the average wage were in Greece (43.4%), Belgium (40.6%) and France (40.5%). New Zealand had the smallest tax wedge for these families (3.8%), followed by Chile (7%), Switzerland (9.8%) and Ireland (9.9%).

The savings realised by a one earner married couple compared to a single worker were greater than 20% of labour costs in Luxembourg, and greater than 15% of labour costs in four other countries – the Czech Republic, Germany, Ireland and Slovenia.

At the other end of the scale, the tax burdens were the same in Chile and Mexico and different by less than three percentage points in Israel, Korea and Turkey.

In 2014, the tax wedge of a one earner married couple with two children increased in 25 and fell in 8 OECD countries: "Comparison of  total tax wedge by family type".

  • In 29 out of the 34 OECD countries the change did not exceed plus or minus one percentage point.
  • There were increases of greater than 1 percentage point in three countries - Ireland (+1.5), New Zealand (+1.3) and Israel (+1.1).
  • The tax wedge fell by 1.1 percentage points in Greece; and by lower amounts in seven other countries: Belgium, Denmark, France, Iceland, Portugal, Sweden and the United Kingdom.

The fiscal preference for families compared with singles increased in 4 OECD countries: Denmark, France, Iceland and Portugal. Additionally, the effects of changes in the tax system on the tax wedge were independent of the family type in Austria, Belgium, Chile, Mexico, Switzerland and Turkey.

Downloadable tables/figures

Tax wedge 2014

Annual change of tax wedge components between 2013 and 2014

Changes in OECD Tax wedge components between 2007 and 2014

Annual change of tax wedge components between 2007 and 2010

Annual change of tax wedge components between 2010 and 2014

Comparison of total tax wedge by family type

Tax wedge definitions

Back to the home page

 

 

 

Also Available