Labour taxes rise across OECD countries amid persistent inflation

Temps de lecture: 5 min |May 2, 2024 à 10:05 PM

A second consecutive year of high inflation pushed up labour taxes across OECD countries in 2023, according to a new OECD report.

OCDE (2024), Taxing Wages 2024 : Tax and Gender through the Lens of the Second Earner, Éditions OCDE, Paris, https://doi.org/10.1787/dbcbac85-en.

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About this report….

This annual publication provides details of taxes paid on wages in OECD countries. This year’s edition focuses on fiscal incentives for second earners in the OECD and how tax policy might contribute to gender gaps in labour market outcomes. For the year 2023, the report also examines personal income taxes and social security contributions paid by employees, social security contributions and payroll taxes paid by employers, and cash benefits received by workers. It illustrates how these taxes and benefits are calculated in each member country and examines how they impact household incomes. The results also enable quantitative cross-country comparisons of labour cost levels and the overall tax and benefit position of single persons and families on different levels of earnings. The publication shows average and marginal effective tax rates on labour costs for eight different household types, which vary by income level and household composition (single persons, single parents, one or two earner couples with or without children). The average tax rates measure the part of gross wage earnings or labour costs taken in tax and social security contributions, both before and after cash benefits, and the marginal tax rates the part of a small increase of gross earnings or labour costs that is paid in these levies.

What can be learned ?

Taxing Wages 2024 reveals that effective tax rates on labour incomes rose in a majority of OECD countries with the post-tax income of single workers earning the average wage declining in 21 out of 38 OECD countries.

In a majority of countries, the increase in labour taxation was primarily driven by increases in personal income tax. While real wages declined in 18 OECD countries, nominal wages increased in 37 out of 38 OECD countries, as inflation remained above historic levels. In the absence of automatic indexation of tax systems in many OECD countries, high inflation tends to increase workers’ tax liabilities by pushing them into higher tax brackets and erodes the value of the tax reliefs and cash benefits they receive.

Referring to the labour tax wedge

The new OECD analysis focuses on cross-country comparison of the labour tax wedge – defined as total taxes on labour paid by both employees and employers, minus family benefits, as a percentage of labour costs. It looks at eight different household types, varying by income level and household composition.

For a single worker earning the average wage, the average tax wedge across OECD countries was 34.8%, ranging from 53% in Belgium to 0% in Colombia in 2023. The average tax wedge for this household type increased by 0.13 percentage points from 2022, marking an increase for the second consecutive year.

This year’s edition of Taxing Wages includes a special feature that examines how the tax wedge differs between first and second earners. Specifically, the report analyses the tax rates on second earners in married couples, more than 75% of whom are women in almost all OECD countries. It finds that second earners face higher effective tax rates than single workers when they take up work at the same wage level in the majority of OECD countries, although the difference has narrowed in recent years.

On average in the OECD, a second earner in a couple without children who takes up work at 67% of the average wage faces a tax wedge of 34.0%, versus 31.0% for a single worker earning 67% of the average wage. Fiscal disincentives for second earners are larger in countries where taxation occurs at the household level or in countries with individual-level taxation where tax reliefs are considered at the household level.

Taxing Wages 2024 enables cross-country comparisons of labour costs and the overall tax and benefit position across the OECD. It analyses income tax paid by employees, cash benefits received by in-work families and the associated social security contributions and payroll taxes made by employees and employers, which are key factors affecting the workforce participation and hiring decisions of individuals and businesses respectively.

COUNTRY SUMMARIES AND DATA

Further information and individual country notes are available at:

https://oe.cd/taxingwages

More information about Belgium

HIGHLIGHTS

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