Tax policy analysis

Taxing Wages 2013

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This website contains information on tax burden on labour income in OECD countries in the following sections:

Tax burden on labour income in 2012 and recent trends

A. The tax wedge overview for an average single worker in the OECD in 2012

B. Employer social security contributions as the main contributors to the tax wedge increase in 2012

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

D. Tax wedge for families with children

Tax burden trends between 2000 and 2012

Taxing Wages methodology and limitations

News Release

26/03/2013: Tax burdens on labour income in OECD countries continue to rise. [disponible en français]

Tax burden on labour income in 2012 and recent trends

A. The tax wedge overview for an average single worker in the OECD in 2012

The tax wedge between total labour costs to the employer and the corresponding net take-home pay for the average single workers without children in OECD countries varied between Belgium (56%) and Chile (7%) in 2012. The tax wedge was around 50% in France (50.2%), Germany (49.7%) and Hungary (49.4%), and under 20% in Israel (19.2%), Mexico (19.0%) and New Zealand (16.4%). The OECD average tax wedge was 35.6% of total labour cost in 2012 (please click on the link "Tax Wedge 2012")

The constituent components of the tax wedge
as a % of labour costs^1,2 in 2012

‌

1. Single individual without children at the income level of the average worker.
2. Includes payroll taxes where applicable.
Sources: country submissions, OECD Economic Outlook Volume 2012 (No. 92).

The percentage of labour costs paid in income tax varies considerably within OECD countries. The lowest figures are in Chile (zero) and Korea (4.4%). The highest values are in Denmark (36.2%), 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 17.3% in Germany and 19% in Slovenia.

Employers in France pay 30.6% 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, 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 exceeds one-third of total labour costs in seven OECD countries: Austria, Belgium, the Czech Republic, France, Germany, Greece and Hungary.

B. Employer social security contributions as the main contributors to the tax wedge increase in 2012

In 2012, the OECD average tax wedge slightly increased by 0.1 percentage point to reach 35.6%. The average tax and social security burden on employment incomes increased in 19 out of 34 OECD countries and fell in 14 (please click on the link "Annual change of tax wedge components between 2011 and 2012").

Increases in OECD tax wedge components in 2012¹
In percentage points

‌

1. Single individual without children at the income level of the average worker.
2. Includes payroll taxes.
Sources: country submissions, OECD Economic Outlook Volume 2012 (No. 92).

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 personal income taxes (PIT) also rose. The tax burden increases in Spain (+1.42 percentage points) and Australia (+0.58) 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 the countries where tax wedges fell - the largest decrease was in Portugal (-1.26 percentage points) where there was a reduction in the surtax rate.

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

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

increased by 0.1 percentage point from 35.5 to 35.6% between 2011 and 2012,
increased by 0.6 percentage points from 35.0 to 35.6% between 2010 and 2012,
previously declined 1.1 percentage points from 36.1 to 35.0% between 2007 and 2010.

Changes in OECD tax wedge components between 2007 and 2012¹
In percentage points

‌

1. Single individual without children at the income level of the average worker.
2. Includes payroll taxes.
Sources: country submissions, OECD Economic Outlook Volume 2012 (No. 92).

Between 2007 and 2010, the tax wedge decreased in 23 OECD countries and increased in 10. The largest decreases were in Hungary (-7.93 percentage points), Turkey (-4.88 percentage points), Israel (-4.71 percentage points) and New Zealand (-4.08 percentage points). The tax wedge decline was mostly due to lowered PIT burden (please click on the link "Annual change of tax wedge components between 2007 and 2010").

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 2012, the tax wedge rose in 26 OECD countries and fell in 7, partially reversing the reductions between 2007 and 2010. PIT was the main factor in the OECD tax wedge increase between 2010 and 2012 (please click on the link "Annual change of tax wedge components between 2010 and 2012" ).

PIT burdens rose in 23 out of 34 countries between 2010 and 2012, 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 6 countries (Australia, Denmark, Spain, Italy, Ireland and Portugal) increased their statutory income tax rates for workers on average earnings. In 3 of those, surtaxes were introduced:

In Australia, for the 2011-12 income year alone, the Government introduced a temporary flood and cyclone reconstruction levy to assist with the cost of helping communities affected by the natural disasters and rebuilding essential infrastructure.
In Italy, a surtax ("Contributo di Solidarietà") was introduced for the 2011- 2013 tax periods.
In Portugal, a surtax was introduced in 2011 of which rate decreased in 2012.

D. Tax wedge for families with children

The OECD average tax wedge for a one earner couple with two children was 26.1% of the total labour cost in 2012. This figure was 9.5 percentage points lower than the one observed for the individual without children (please click on the link "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 2012^1,2
As a % of labour costs

‌

1. Countries ranked by decreasing tax wedge of the one earner couple with two children.
2. The households are at the average wage level.
Sources: country submissions, OECD Economic Outlook Volume 2012 (No. 92).

In 2012, the highest tax wedges for one earner couples with two children 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 savings realised by a one earner married couple compared to a single worker were greater than 20 per cent of labour costs in the Czech Republic and Luxembourg and greater than 15 per cent of labour costs in five other countries - Germany, Hungary, Ireland, New Zealand 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 Greece, Korea and Turkey.

In 2012, the tax wedge of a one earner married couple with two children increased in 22 and fell in 10 OECD countries (please click on the link "Comparison of total tax wedge by family type")

In 70% of countries the change did not exceed plus or minus one percentage point.
There were increases of greater than 1 percentage point in eight countries - Japan (+2.4), New Zealand (+1.6), Iceland (+1.4), Australia (+1.3), Poland and the United Kingdom (+1.2) and the Netherlands and Spain (+1.1). The family tax burden increase in Japan was due to the abolition of tax allowances for dependent children.
The tax wedge fell by 1.6 percentage points in the Czech Republic and by 1.2 percentage points in Portugal; and by lower amounts in eight other countries: Canada, Greece, Israel, Italy, Luxembourg, Slovenia, Switzerland and Turkey.

The fiscal preference for families compared with singles increased in 7 OECD countries: Canada, the Czech Republic, France, Israel, Italy, Slovenia and Spain. Additionally, the effects of changes in the tax system on the tax wedge were independent of the family type in Belgium, Finland, Greece, Korea, Mexico, Poland, Switzerland and Turkey.

Tax burden trends between 2000 and 2012

The evolution of the tax wedge as percentage of total labour cost over the period 2000 to 2012 for the single worker on average earnings and on the one earner married couple with two on average earnings is presented in the linked tables "Tax burden trends 2000-2012_single" and "Tax burden trends 2000-2012_one earner couple with two children".

The OECD average tax wedge declined between 2000 and 2012 for both of the selected household types. There were 9 OECD countries with a reduction of more than 5 percentage points between 2000 and 2012 for at least one of the two family types; Australia, Canada, Denmark, Finland, Hungary, Ireland, Israel, New Zealand and Sweden.

Single average worker

The average OECD tax wedge declined by 1.1 percentage points from 36.7 to 35.6%.
There were declines in 26 OECD countries over the 12 years and increased in 8 (Austria, Greece, Iceland, Italy, Japan, Korea, Mexico and Spain).
The largest decline was for 9.8 percentage points in Israel.
There was also a decline of over 7 percentage points in Sweden.
There was a reduction in the tax wedge of more than 5 percentage points in 3 other countries (Denmark, Finland and Hungary).

One earner married couple with two children on average earnings

The average OECD tax wedge declined by 1.6 percentage points from 27.7 to 26.1%.
There were declines in 22 OECD countries over the 12 years and increases in 12 (Austria, Chile, France, Greece, Iceland, Japan, Korea, Mexico, the Netherlands, Norway, Spain and the United Kingdom).
The largest decline in the tax wedge was for 13 percentage points in New Zealand.
There were also declines of 9 to 10 percentage points in Hungary, Ireland and Iceland.
There was a reduction in the tax wedge of more than 5 percentage points in 3 other countries (Australia, Canada and Sweden).

Country information

These country-specific Taxing Wages webpages contain downloadable data and interactive charts describing the tax burden on wage income in each of the 34 OECD member countries in three sections:

A comparison of the tax burden in each country with the OECD average; charts that show the change in the average and marginal tax wedge and net personal tax rate between 2000, 2009 and 2012 are also included.
Links to charts that show the tax burden on labour income in 2012 for gross wage earnings between 50% and 250% of the average wage.
A section on wage income tax reforms and changes in tax Burdens between 2000 and 2009 (Special Feature, Taxing Wages, 2010 edition).

The data is presented in a user-friendly way and is targeted at a broad audience (journalists, policymakers, academics, broader public).

Australia	Japan
Austria	Korea
Belgium	Luxembourg
Canada	Mexico
Chile	Netherlands
Czech Republic	New Zealand
‌ ‌‌Denmark	Norway
Estonia	Poland
Finland	Portugal
France	‌Slovak Republic
‌Germany	Slovenia
Greece	Spain
Hungary	Sweden
Iceland	Switzerland
‌Ireland	Turkey
Israel	United Kingdom
Italy	United States

Taxing Wages database

The Taxing Wages database has been updated with data for 2012:

The database comparative tables, which are also reported in the OECD Taxing Wages publication, provide unique information for each of the OECD countries on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers.
The amounts of taxes and social security contributions paid and cash benefits received are set out, program by program, for 8 different household types characterized by marital status, number of children, earnings levels expressed as proportion of average wages and whether there are one or two earners.
The results reported include the average and marginal tax burden for each household type. These data on tax burdens and cash benefits are widely used in academic research and the preparation and evaluation of social economic policy-making.

Related working paper

Paturot, D., K. Mellbye and B. Brys (2013), "Average Personal Income Tax Rate and Tax Wedge Progression in OECD Countries", OECD Taxation Working Papers, No. 15, OECD Publishing.

The statutory progressivity of the income taxes paid by wage earners, net of the standard cash benefits they receive, depends on the design and interaction of personal income taxes, social security contributions (SSCs) and cash benefits. In order to capture their combined impact, the paper presents statutory tax progressivity indicators for the 34 OECD member countries on the basis of average effective income tax rates and tax wedges which are calculated using the OECD’s Taxing Wages framework. The analysis shows a decreasing pattern of tax progressivity across income levels. In some countries, the tax system becomes regressive when the SSC ceiling has been reached. The Working Paper has been published in the Tax Policy discussion paper series.

Taxing Wages methodology and limitations

In reality the personal circumstances of taxpayers vary greatly. This Report therefore adopts a specific methodology to identify representative taxpayers and to calculate the amount of their taxes.

The focus is on employees.
It is assumed that their annual income from employment is equal to a given fraction of the average gross wage earnings of adult, fulltime workers in a broad range of industry sectors of each OECD economy.
Additional assumptions are made regarding other relevant personal circumstances of these wage earners to enable their tax/benefit position to be determined.

Methodology and limitations (PDF)

Table B.1. Source of earnings data, 2012 (xlsx)

Related publication	Access the data	Related websites
The Taxing Wages 2013 edition will be available from: OECD iLibrary for subscribing institutions Non-subscribers can purchase the PDF e-book and/or paper copy via our OECD Online Bookshop Order from your local distributor Government officials with accounts (subscribe) can go to the "Books" tab on OLIS Accredited journalists, password required For further information please contact the CTPA communications team.	Free:Comparative analyses comparing country data can be found on our free online database Taxing Wages comparative data Subscription: Access to the complete dataset shown in the Taxing Wages report, including detailed country information, is through subscription. For details on how to subscribe please visit our "Getting Online Access" page at the OECD Library website.	The OECD Tax database Revenue Statistics 2012 edition Benefits and Wages: OECD Indicators Tax & Benefit indicators database (European Commission)
Tax articles	Tax Working Papers	Tax Policy Studies
Taxing Working Families: A Distributional Analysis (Tax Policy Study N° 12) Modelling the Tax Burden on Labour Income in Brazil, China, India, Indonesia and South Africa (Tax policy working paper N° 14) Non-Tax Compulsory Payments as an Additional Burden on Labour Income (Tax policy working paper N° 8) Fundamental Reform of Personal Income Tax (Tax Policy Study N° 13) Consumption Taxation as an Additional Burden on Labour Income (Tax policy working paper N° 7) Wage Income Tax Reforms and Changes in Tax Burdens: 2000-2009 (Tax policy working paper N° 10) Taxation and Employment (Tax Policy Study N° 21)	These 40-70 page documents cover the full range of the Centre for Tax Policy and Administration’s work on taxation with the main focus on tax policy related issues. What is a "Competitive" Tax System? Making Fundamental Tax Reform Happen Trends in Top Incomes and their Tax Policy Implications Corporate Taxation and SMEs: The Italian Experience Shifting from Social Security Contributions to Consumption Taxes Access all the CTPA Working Papers:	A published 'mini-books' series used to disseminate the tax policy work undertaken by the Centre for Tax Policy and Administration to a world-wide audience. A wide range of topics are covered: Choosing a Broad Base – Low Rate Approach to Taxation Taxation of SMEs: Key Issues and Policy Considerations Tax Effects on Foreign Direct Investment: Recent Evidence and Policy Analysis Fundamental Reform of Corporate Income Tax Taxation of Capital Gains of Individuals: Policy Considerations and Approaches Access all the CTPA Tax Policy Studies