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OECD: employment tax burdens rise despite static income tax rates

Taxes have risen by around one per cent on the average worker's wage in Organisation for Economic Co-operation and Development (OECD) countries since 2014, although the majority of governments have not increased income tax rates, the OECD has said15 Apr 2015

In its Taxing Wages 2015  report, the OECD looks at the 'tax wedge' in different countries. It defines this as the percentage difference between what it costs a business to employ a worker, and what that worker receives after income taxes and social security contributions are paid by both the worker and their employer.

In 2014, the tax wedge on the average worker across the OECD was 36%, up 0.1%. This followed increases of 0.2%, 0.1% and 0.5% in the three years since 2010, which reversed the decline from 36.1% to 35.1% between 2007 and 2010.

Between 2010 and 2014, the tax wedge rose in 23 OECD countries, and fell in 10. However, by 2014, only seven OECD countries had higher statutory income tax rates for average earnings, and in six countries the rates had dropped.

Most of the increase in tax has been caused by wages rising faster than tax allowances and credits, the OECD said.

The highest average tax wedges for childless single workers earning an average wage for their country were in Belgium (55.6%), Austria (49.4%), Germany (49.3%) and Hungary (49.0%). The lowest were in Chile (7%), New Zealand (17.2%), Mexico (19.5%) and Israel (20.5%).  

The highest tax wedges on an average wage for one-earner families with two children 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 average for OECD countries was 26.9%.

In all OECD countries except Chile, Greece and Mexico, the tax wedge for workers with children is lower than that for single workers without children. 

The report contains a chapter looking at non-OECD countries: Brazil, China, India, Indonesia and South Africa. The tax wedge varies significantly from country to country, the OECD said. In 2013, the tax wedge in Brazil and China was similar to that in OECD countries, but much lower in India, Indonesia and South Africa.