Chapter 1. Overview

This chapter presents the main results of the analysis of the taxation of labour income across OECD member countries in 2018. Most emphasis is given to the tax wedge – a measure of the difference between labour costs to the employer and the corresponding net take-home pay of the employee – which is calculated by expressing the sum of personal income tax, employee plus employer social security contributions together with any payroll tax, minus benefits as a percentage of labour costs. The calculations also focus on the net personal average tax rate. This is the term used when the personal income tax and employee social security contributions net of cash benefits are expressed as a percentage of gross wage earnings. The analysis focuses on the single worker, with no children, at average earnings and makes a comparison with the single earner married couple with two children, at the same income level. A complementary analysis focuses on the two earner couple with two children, where one spouse earns the average wage and the other 67% of it.

    

This Report provides unique information for each of the 36 OECD countries on the income taxes paid by workers, their social security contributions, the transfers they receive in the form of cash benefits, as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for one- and two-earner households, and the implied total labour costs for employers. These data are widely used in academic research and in the formulation and evaluation of social and economic policies. The taxpayer-specific detail in this Report enables it to complement the information provided annually in Revenue Statistics, a publication providing internationally comparative data on tax levels and tax structures in OECD countries. The methodology followed in this Report is described briefly in the introduction section below and in more detail in the Annex.

The tables and charts present estimates of tax burdens and of the tax ‘wedge’ between labour costs and net take-home pay for eight illustrative household types on comparable levels of income. The key results for 2018 are summarised in second section below. Part I of the Report presents more detailed results for 2018, together with comparable results for 2017 and discusses the changes between the two years. Part II of the Report reviews historical changes in tax burdens between 2000 and 2018.

The present chapter 1 begins with an introduction to the Taxing Wages methodology that is followed by a review of the results of tax burden indicators for 2018. The review includes the tax wedge and the personal average tax rates results for a single worker, without children, earning the average wage, and also the corresponding indicators for a one-earner couple at the average wage level and a two-earner couple where one spouse earns the average wage and the other 67% of it, and assumes that both couples have two children. Finally, the chapter ends with a section on the change in the average wage levels by country and the industry classification on which they are based.

Introduction

This section briefly introduces the methodology employed for Taxing Wages, which focuses on full-time employees. It is assumed that their annual income from employment is equal to a given percentage of the average full-time adult gross wage earnings for each OECD economy, referred to as the average wage (AW). This covers both manual and non-manual workers for either industry sectors C-K inclusive with reference to the International Standard Industrial Classification of All Economic Activities, Revision 3 (ISIC Rev.3) or industry sectors B-N inclusive with reference to the International Standard Industrial Classification of All Economic Activities, Revision 4 (ISIC Rev.4).1 Further details are provided in Table 1.8 as well as in the Annex of this Report. Additional assumptions are made about the personal circumstances of these wage earners in order to determine their tax/benefit position.

In Taxing Wages, the term tax includes the personal income tax, social security contributions and payroll taxes (which are aggregated with employer social contributions in the calculation of tax rates) payable on gross wage earnings. Consequently, any income tax that might be due on non-wage income and other kinds of taxes – e.g. corporate income tax, net wealth tax and consumption taxes – are not taken into account. The transfers included are those paid by general government as cash benefits, usually in respect of dependent children.

For most OECD countries, the tax year is equivalent to the calendar year, the exceptions being Australia, New Zealand and the United Kingdom. In the case of New Zealand and the United Kingdom, where the tax year starts in April, the calculations apply a ‘forward-looking’ approach. This implies that, for example, the tax rates reported for 2018 are those for the tax year 2018-19. However, in Australia, where the tax year starts in July, it has been decided to take a ‘backward looking’ approach in order to present more reliable results. So, for example, the year 2018 in respect of Australia has been defined to mean its tax year 2017-2018.

Taxing Wages presents several measures of taxation on labour. Most emphasis is given to the tax wedge – a measure of the difference between labour costs to the employer and the corresponding net take-home pay of the employee – which is calculated by expressing the sum of personal income tax, employee plus employer social security contributions together with any payroll tax, minus benefits as a percentage of labour costs. Employer social security contributions and – in some countries – payroll taxes are added to gross wage earnings of employees in order to determine a measure of total labour costs. The average tax wedge measures identify that part of total labour costs which is taken in tax and social security contributions net of cash benefits. In contrast, the marginal tax wedge measures identify that part of an increase of total labour costs that is paid in taxes and social security contributions less cash benefits. However, it should be notified that this measure only includes payments that are classified as taxes. Employees and employers may also have to make non-tax compulsory payments2 that may increase the indicators that are presented in the Taxing Wages publication. A report that is available on the OECD Tax Database presents “compulsory payment indicators” that combine the burden of taxes and NTCPs: http://www.oecd.org/tax/tax-policy/non-tax-compulsory-payments.pdf.

The calculations also focus on the net personal average tax rate. This is the term used when the personal income tax and employee social security contributions net of cash benefits are expressed as a percentage of gross wage earnings. The net personal marginal tax rate shows that part of an increase of gross wage earnings that is paid in personal income tax and employee social security contributions net of cash benefits.

Review of results for 2018

Tax Wedge

Table 1.1 shows that the 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, varied widely across OECD countries in 2018 (see column 1). While in Austria, Belgium, France, Germany, Hungary and Italy, the tax wedge is 45% or more, it is lower than 20% in Chile, Mexico and New Zealand. The highest tax wedge is observed in Belgium (52.7%) and the lowest in Chile (7.0%). Table 1.1 shows that the average tax wedge in OECD countries was 36.1% in 2018.

The changes in tax wedge between 2017 and 2018 for the average worker without children are described in column 2 of Table 1.1. The OECD average decreased by 0.16 percentage points. Among the OECD member countries, the tax wedge increased in 22 countries and fell in 14. Decreases of more than one percentage point were observed in Estonia (2.54 percentage points), the United States (2.19 percentage points), Hungary (1.11 percentage points) and Belgium (1.09 percentage points). There were no increases exceeding one percentage point and the largest increase was observed in Korea (0.49 percentage points).

In general, the rises in tax wedge rates were driven by higher income taxes (see column 3). This was the major factor in 20 of the countries showing an overall increase. The largest increase in personal income taxes as a percentage of labour costs was in France (1.36 percentage points), largely due to an increase of 1.7 percentage points in the surtax rate (Contribution Sociale Généralisée), but the increase in personal income taxes was mostly offset by reduced social security contributions.

Decreases in the tax wedge were also derived for the most part from lower income taxes in 10 OECD countries (Denmark, Estonia, Finland, Latvia, Lithuania, Mexico, Norway, Portugal, Turkey and the United States). Income tax as a percentage of labour costs decreased by more than one percentage point in three of those countries: Latvia (1.29 percentage points) due to the introduction of a tax allowance and a progressive income tax schedule; the United States (2.14 percentage points) as a result of a higher basic tax allowance and lower marginal income tax rates; and Estonia (2.54 percentage points) due to a higher basic tax allowance. In three other OECD countries (Belgium, Germany and Hungary), the decreasing tax wedges were mostly driven by lower social security contributions. Employer social security contributions as a percentage of labour costs decreased in Belgium (0.83 percentage points) and in Hungary (1.67 percentage points) where the total contribution rate declined respectively from 32.19% to 27.14% and from 22.0% to 19.5% in 2018. In the United Kingdom, income taxes and the sum of employee and employer social security contributions evenly decreased as percentages of labour costs (both by 0.05 percentage points).

Table 1.2 and Figure 1.1 show the constituent components of the tax wedge in 2018, i.e. income tax, employee and employer social security contributions (including payroll taxes where applicable), as a percentage of labour costs for the average worker without children. The labour costs in Table 1.2 are expressed in US dollars with equivalent purchasing power.

The percentage of labour costs paid in income tax varies considerably within OECD countries. The lowest figures are in Chile (zero) and Korea (5.8%). The highest values are in Denmark (35.8%), 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, Denmark and New Zealand to 17.3% in Germany and 19.0% in Slovenia. Employers in France pay 26.5% of labour costs in social security contributions, the highest amongst OECD countries. The corresponding figures are also 20% or more in 10 other countries - Austria, Belgium, the Czech Republic, Estonia, Greece, Italy, Lithuania, 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 at least one-third of labour costs in eight OECD countries: Austria, the Czech Republic, France, Germany, Greece, Hungary, the Slovak Republic and Slovenia.

Table 1.1. Comparison of total tax wedge
As % of labour costs, 2018

Country1

Total Tax wedge 2018 (1)

Annual change, 2018/17 (in percentage points)²

Tax wedge (2)

Income tax (3)

Employee SSC (4)

Employer SSC3 (5)

Belgium

52.7

-1.09

-0.37

0.11

-0.83

Germany

49.5

-0.09

0.06

-0.12

-0.04

Italy

47.9

0.20

0.20

0.00

0.00

France

47.6

0.04

1.36

-1.87

0.55

Austria

47.6

0.21

0.31

0.02

-0.12

Hungary

45.0

-1.11

0.25

0.31

-1.67

Czech Republic

43.7

0.38

0.38

0.00

0.00

Slovenia

43.3

0.34

0.34

0.00

0.00

Sweden

43.1

0.13

0.14

-0.01

0.00

Latvia

42.3

-0.60

-1.29

0.37

0.32

Finland

42.3

-0.40

-0.21

0.43

-0.62

Slovak Republic

41.7

0.14

0.27

0.02

-0.15

Greece

40.9

0.15

0.15

0.00

0.00

Portugal

40.7

-0.69

-0.69

0.00

0.00

Lithuania

40.6

-0.44

-0.44

0.00

0.00

Spain

39.4

0.13

0.13

0.00

0.00

Turkey

38.9

-0.13

-0.13

0.00

0.00

Luxembourg

38.2

0.37

0.44

0.01

-0.08

Netherlands

37.7

0.31

0.23

-0.16

0.24

Estonia

36.5

-2.54

-2.54

0.00

0.00

Norway

35.8

-0.13

-0.13

0.00

0.00

Poland

35.8

0.09

0.09

0.00

0.00

Denmark

35.7

-0.15

-0.19

0.00

0.00

Iceland

33.2

0.16

0.17

-0.01

0.00

Ireland

32.7

0.12

0.04

0.00

0.08

Japan

32.6

0.12

0.03

0.02

0.07

United Kingdom

30.9

-0.11

-0.05

-0.02

-0.03

Canada

30.7

0.11

0.21

-0.03

-0.07

United States

29.6

-2.19

-2.14

0.00

-0.06

Australia

28.9

0.27

0.27

0.00

0.00

Korea

23.0

0.49

0.34

0.08

0.07

Israel

22.4

0.36

0.30

0.04

0.02

Switzerland

22.2

0.14

0.14

0.00

0.00

Mexico

19.7

-0.71

-0.76

0.00

0.05

New Zealand

18.4

0.30

0.30

0.00

0.00

Chile

7.0

0.01

0.01

0.00

0.00

Unweighted average

 

 

 

 

OECD Average

36.1

-0.16

-0.08

-0.02

-0.06

Note: Single individual without children at the income level of the average worker.

1. Countries ranked by decreasing total tax wedge.

2. Due to rounding, the changes in tax wedge in column (2) may differ by one-hundredth of a percentage point from the sum of columns (3)-(5). For Denmark, the Green Check (cash benefit) contributes to the difference as it is not included in columns (3)-(5).

3. Includes payroll taxes where applicable.

Sources: country submissions, OECD Economic Outlook Volume 2018 issue 2.

 StatLink http://dx.doi.org/10.1787/888933922688

Table 1.2. Income tax plus employee and employer social security contributions
As % of labour costs, 2018

Country1

Total tax wedge2 (1)

Income tax (2)

Social security contributions

Labour costs4 (5)

employee (3)

employer3 (4)

Switzerland

22.2

10.5

5.9

5.9

82 186

Germany

49.5

16.0

17.3

16.2

80 284

Belgium

52.7

20.3

11.0

21.3

79 308

Luxembourg

38.2

15.1

10.8

12.3

78 364

Austria

47.6

11.6

14.0

22.1

77 931

Netherlands

37.7

15.6

11.6

10.4

72 783

Iceland

33.2

26.6

0.3

6.3

70 994

France

47.6

12.3

8.8

26.5

70 105

Sweden

43.1

13.8

5.3

23.9

67 312

Ireland

32.7

19.3

3.6

9.8

66 433

Norway

35.8

17.1

7.3

11.5

64 592

Australia

28.9

23.3

0.0

5.6

63 375

United Kingdom

30.9

12.6

8.5

9.8

63 287

Korea

23.0

5.8

7.7

9.5

62 391

Denmark

35.7

35.8

0.0

0.0

61 827

Finland

42.3

16.6

8.1

17.6

61 353

Japan

32.6

6.8

12.5

13.3

59 776

Italy

47.9

16.7

7.2

24.0

59 594

United States

29.6

14.9

7.1

7.6

59 485

Spain

39.4

11.5

4.9

23.0

55 252

Canada

30.7

14.1

6.6

10.0

47 476

Greece

40.9

8.1

12.8

20.0

46 029

Israel

22.4

9.5

7.6

5.3

44 173

New Zealand

18.4

18.4

0.0

0.0

41 502

Czech Republic

43.7

10.2

8.2

25.4

41 154

Slovenia

43.3

10.3

19.0

13.9

39 742

Estonia

36.5

10.0

1.2

25.3

39 653

Portugal

40.7

12.6

8.9

19.2

39 435

Poland

35.8

6.3

15.3

14.1

36 644

Hungary

45.0

12.4

15.3

17.4

36 019

Turkey

38.9

11.2

12.8

14.9

35 336

Slovak Republic

41.7

8.0

10.3

23.5

32 868

Lithuania

40.6

10.0

6.9

23.8

32 421

Latvia

42.3

14.0

8.9

19.4

29 727

Chile

7.0

0.0

7.0

0.0

23 941

Mexico

19.7

7.9

1.2

10.5

14 616

Unweighted average

 

 

 

 

OECD Average

36.1

13.5

8.2

14.4

53 816

Note: Single individual without children at the income level of the average worker.

1. Countries ranked by decreasing labour costs.

2. Due to rounding, the total in column (1) may differ by one tenth of a percentage point from the sum of columns (2)-(4). For Denmark, the Green Check (cash benefit) contributes to the difference as it is not included in columns (2)-(4).

3. Includes payroll taxes where applicable.

4. US dollars with equal purchasing power.

Sources: country submissions, OECD Economic Outlook Volume 2018 issue 2.

 StatLink http://dx.doi.org/10.1787/888933922726

Figure 1.1. Income tax plus employee and employer social security contributions, 2018
As a % of labour costs
picture

Notes: Single individual without children at the income level of the average worker.

Includes payroll taxes where applicable.

 StatLink http://dx.doi.org/10.1787/888933922669

Personal average tax rates

The personal average tax rate is defined as income tax plus employee social security contributions as a percentage of gross wage earnings. Table 1.3 and Figure 1.2 show the personal average tax rates in 2018 for a single worker without children at the average earnings level. The average workers’ gross wage earnings figures in Table 1.3 are expressed in terms of US dollars with equivalent purchasing power. Figure 1.2 provides a graphical representation of the personal average tax rate decomposed between income tax and employee social security contributions.

Table 1.3 and Figure 1.2 show that on average, the personal average tax rate for a single worker at average earnings in OECD countries was 25.5% in 2018. Belgium at 39.8% of gross earnings had the highest rate with Denmark and Germany being the only other countries with rates of more than 35%. Chile and Mexico had the lowest personal average tax rates at 7.0% and 10.2% of gross average earnings respectively. Korea and Estonia were the other countries with a rate of 15% or less.

The impact of taxes and benefits on a worker’s take-home pay varies greatly among OECD countries. Such wide variations in the size and make-up of tax wedges reflect in part differences in:

  • The overall ratio of aggregate tax revenues to Gross Domestic Product; and,

  • The share of personal income tax and social security contributions in national tax mixes.

The mix of income tax and social security contributions paid out of gross wage earnings also varies greatly between countries as illustrated in Figure 1.2.

In 2018, the share of income tax within the personal average tax rate was higher than the share of the employee social security contributions for 25 of the 36 OECD member countries. No employee social security contributions were levied in Australia, Denmark and New Zealand and the rates were 4% or less of gross earnings in Estonia, Iceland, Ireland and Mexico. In contrast, the single worker at the average wage level paid substantially more (i.e., six percentage points or more) in employee social security contributions than in personal income tax in five countries – Chile, Greece, Japan, Poland and Slovenia. In Chile, the average worker paid a marginal amount of personal income tax in 2018 (0.01% of gross earnings). In six countries - the Czech Republic, Germany, Israel, Korea, the Slovak Republic and Turkey - the shares of personal income tax and employee social security contributions as percentages of gross earnings were very close (i.e., differences of less than 3 percentage points).

Table 1.3. Income tax plus employee social security contributions, 2018
As % of gross wage earnings

Country1

Total payment2 (1)

Income tax (2)

Employee social security contributions (3)

Gross wage earnings3 (4)

Switzerland

17.4

11.2

6.2

77 370

Luxembourg

29.5

17.2

12.3

68 735

Germany

39.7

19.1

20.6

67 254

Iceland

28.7

28.4

0.3

66 505

Netherlands

30.5

17.5

13.0

65 227

Belgium

39.8

25.9

14.0

62 378

Denmark

35.7

35.8

0.0

61 827

Austria

32.8

14.8

18.0

60 737

Ireland

25.4

21.4

4.0

59 930

Australia

24.6

24.6

0.0

59 806

Norway

27.5

19.3

8.2

57 161

United Kingdom

23.4

14.0

9.4

57 095

Korea

14.9

6.4

8.5

56 488

United States

23.8

16.1

7.7

54 951

Japan

22.3

7.9

14.5

51 849

France

28.7

16.8

11.9

51 504

Sweden

25.2

18.2

7.0

51 219

Finland

30.0

20.2

9.8

50 542

Italy

31.4

21.9

9.5

45 291

Canada

23.0

15.7

7.4

42 730

Spain

21.3

14.9

6.4

42 535

Israel

18.1

10.0

8.0

41 825

New Zealand

18.4

18.4

0.0

41 502

Greece

26.1

10.1

16.0

36 806

Slovenia

34.1

12.0

22.1

34 231

Portugal

26.6

15.6

11.0

31 866

Poland

25.2

7.4

17.8

31 476

Czech Republic

24.6

13.6

11.0

30 712

Turkey

28.2

13.2

15.0

30 073

Hungary

33.5

15.0

18.5

29 768

Estonia

15.0

13.4

1.6

29 636

Slovak Republic

23.9

10.5

13.4

25 147

Lithuania

22.1

13.1

9.0

24 711

Latvia

28.4

17.4

11.0

23 949

Chile

7.0

0.0

7.0

23 941

Mexico

10.2

8.9

1.4

13 081

Unweighted average

 

 

 

OECD Average

25.5

15.7

9.8

46 107

Note: Single individual at the income level of the average worker, without children.

1. Countries ranked by decreasing gross wage earnings.

2. Due to rounding total may differ by one tenth of a percentage point from aggregate of columns for income tax and social security contributions

3. US dollars with equal purchasing power.

Sources: country submissions, OECD Economic Outlook Volume 2018 issue 2.

 StatLink http://dx.doi.org/10.1787/888933922764

Figure 1.2. Percentage of gross wage earnings paid in income tax and employee social security contributions, 2018
picture

Notes: Countries ranked by decreasing tax burden.

Single workers at the income level of the average worker.

 StatLink http://dx.doi.org/10.1787/888933922707

Single versus one-earner couple taxpayers

Table 1.4 compares the tax wedges for a one-earner married couple with two children and a single individual without children, at average earnings levels. These tax wedges varied widely across OECD countries in 2018 (see columns 1 and 2). The size of the tax wedge for the couple with children is generally lower than the one observed for the individual without children, since many OECD countries provide a fiscal benefit to households with children through advantageous tax treatment and/or cash benefits. Hence, the OECD average tax wedge for the one-earner couple with two children was 26.6% compared to 36.1% for the single average worker.

The tax 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 seven other countries – Belgium, Canada, the Czech Republic, Germany, Ireland, New Zealand and Slovenia. The tax burdens of one-earner married couples and single workers on the average wage were the same in Chile and Mexico and differed by less than three percentage points in Israel, Korea and Turkey (see columns 1 and 2).

In 27 of the 36 OECD countries, there was only a small change (not exceeding plus or minus one percentage point) in the tax wedge of an average one-earner married couple with two children between 2017 and 2018 (see column 3). There was no change in Chile. There was an increase of greater than one percentage point only in Poland (10.33 percentage points) as a result of reduced income-tested child benefit payments. In contrast, the tax wedge for families fell by more than one percentage point in seven countries: Greece (1.08 percentage points), Belgium (1.09 percentage points), Hungary (1.13 percentage points), Estonia and the United States (both 2.41 percentage points), Lithuania (2.50 percentage points) and New Zealand (4.52 percentage points). The decreases in the tax wedge resulted from the introduction of, or increases in, tax provisions or cash benefits for dependent children in Greece, Hungary, Lithuania, New Zealand and the United States. By comparison, the decrease in the tax wedge of a single taxpayer without children at the average wage level was greater than one percentage point in four OECD countries (Belgium, Estonia, Hungary and the United States). Detailed explanations on the latter are given in the section on the tax wedge above.

A comparison of the changes in tax wedges between 2017 and 2018 for the one-earner married couples with two children and single persons without children, at the average wage level, is shown in column 5 of Table 1.4. The fiscal preference for families increased in 11 OECD countries: Chile, the Czech Republic, France, Greece, Hungary, Iceland, Lithuania, New Zealand, Sweden, Turkey and the United States. Additionally, the effects of changes in the tax system on the tax wedge were of the same magnitude for both household types in Belgium and Mexico. In seven countries: Chile, Hungary, Japan, Luxembourg, Spain, Switzerland and Turkey, the fiscal preference for families increased or decreased by 0.05 percentage points or less.

Table 1.4. Comparison of total tax wedge for single and one-earner couple taxpayers, 2018
As % of labour costs

Country1

Family² Total Tax wedge 2018 (1)

Single³ Total Tax wedge 2018 (2)

Annual change, 2018/17 (in percentage points)

FamilyTax wedge (3)

Single Tax wedge (4)

Difference between single and family (4)-(3) (5)

France

39.4

47.6

-0.07

0.04

0.11

Italy

39.1

47.9

0.53

0.20

-0.33

Greece

37.9

40.9

-1.08

0.15

1.23

Sweden

37.9

43.1

-0.36

0.13

0.49

Finland

37.8

42.3

-0.29

-0.40

-0.11

Austria

37.4

47.6

0.32

0.21

-0.12

Belgium

37.3

52.7

-1.09

-1.09

0.00

Turkey

37.2

38.9

-0.15

-0.13

0.03

Germany

34.4

49.5

0.05

-0.09

-0.14

Spain

33.9

39.4

0.17

0.13

-0.05

Lithuania

33.2

40.6

-2.50

-0.44

2.06

Netherlands

32.6

37.7

0.53

0.31

-0.22

Norway

32.4

35.8

0.89

-0.13

-1.03

Latvia

32.3

42.3

-0.43

-0.60

-0.17

Slovak Republic

30.3

41.7

0.75

0.14

-0.61

Hungary

30.3

45.0

-1.13

-1.11

0.02

Portugal

29.0

40.7

0.19

-0.69

-0.88

Japan

27.4

32.6

0.17

0.12

-0.05

Estonia

26.6

36.5

-2.41

-2.54

-0.13

United Kingdom

26.2

30.9

-0.04

-0.11

-0.07

Czech Republic

25.5

43.7

-0.35

0.38

0.72

Slovenia

25.2

43.3

0.81

0.34

-0.47

Denmark

25.2

35.7

0.04

-0.15

-0.18

Australia

21.5

28.9

0.82

0.27

-0.55

Iceland

21.5

33.2

-0.87

0.16

1.03

Korea

21.0

23.0

0.59

0.49

-0.10

Poland

20.9

35.8

10.33

0.09

-10.24

Israel

19.9

22.4

0.44

0.36

-0.08

Mexico

19.7

19.7

-0.71

-0.71

0.00

United States

18.5

29.6

-2.41

-2.19

0.22

Ireland

17.3

32.7

0.37

0.12

-0.25

Luxembourg

17.0

38.2

0.42

0.37

-0.05

Canada

11.7

30.7

0.97

0.11

-0.86

Switzerland

9.8

22.2

0.19

0.14

-0.05

Chile

7.0

7.0

0.00

0.01

0.01

New Zealand

1.9

18.4

-4.52

0.30

4.82

Unweighted average

 

 

 

OECD Average

26.6

36.1

0.00

-0.16

-0.17

Notes:

1. Countries ranked by decreasing tax wedge of the family.

2. One earner married couple with two children and earnings at the average wage level.

3. Single individual without children and earnings at the average wage level.

Sources: country submissions, OECD Economic Outlook Volume 2018 issue 2.

 StatLink http://dx.doi.org/10.1787/888933922802

Figure 1.3. Income tax plus employee contributions less cash benefits, 2018
As % of gross wage earnings, by single and one-earner couple taxpayers
picture

Notes: Countries ranked by decreasing rates for single taxpayer without children.

Household types: a single individual without children and earnings at the average wage level and a one earner married couple with two children and earnings at the average wage level.

 StatLink http://dx.doi.org/10.1787/888933922745

Figure 1.3 compares the net personal average tax rate for the average worker between single individuals and a one-earner married couple with two children. These results show the same pattern as the tax wedge results. This is because employer social security contributions, which are not taken into account in the former but included in the latter, are independent of household type. Due to tax reliefs and cash benefits for families with children, the one-earner married couple’s disposable income is higher than the single individual’s by more than 20% of earnings in four countries – the Czech Republic (24.39%), Luxembourg (24.11%), Canada (21.17%) and Slovenia (20.91%). At the lower end of the spectrum, the disposable income of the one-earner married couple is higher than the single individual by less than 10% of earnings in 14 countries – Lithuania (9.75%), Australia (7.78%), Spain (7.13%), Sweden (6.84%), Japan (6.01%), the Netherlands (5.63%), Finland (5.45%), the United Kingdom (5.17%), Norway (3.90%), Greece (3.82%), Israel (2.65%), Korea (2.23%), Turkey (1.95%) and Chile (0.01%). The burden is the same for both household types in Mexico.

Tax on labour income for two-earner couples

The preceding analysis focuses on two households with comparable levels of income: the single worker at 100% of average wage, and the married couple with one earner at 100% of average wage, with two children. This section extends the discussion to include a third household type: the two-earner married couple, earning 100% and 67% of average wage, with two children.

For this household type, the OECD average tax wedge as a percentage of labour costs for the household was 30.8% in 2018 (Figure 1.4 and Table 1.5). Belgium had a tax wedge of 45.1%, which was the highest among the OECD countries. The other countries with tax wedges exceeding 40% were Austria (40.3%), Italy (41.7%), France (42.4%) and Germany (42.6%). At the other extreme, the lowest tax wedge was observed in Chile (6.7%). The other countries with tax wedges of less than 20% were Israel and Switzerland (both 16.1%), New Zealand (17.1%) and Mexico (18.2%).

Figure 1.4 shows the average tax wedge and its components as a percentage of labour costs for the two-earner couple for 2018. On average across OECD countries income tax represented 10.57% of the labour costs and the sum of the employees and employers’ social security contributions represented 22.46% of this. The OECD tax wedge is net of cash benefits, which represented 2.22% of labour costs in 2018.

The cash benefits that are considered in the Taxing Wages publication are those universally paid to workers in respect of dependent children between the ages of six to eleven inclusive. In-work benefits that are paid to workers regardless of their family situation are also included in the calculations. For the observed two-earner couple, Denmark paid an income-tested cash benefit (the Green Check) that also benefited childless single workers.

Compared to 2017, the OECD average tax wedge of the two-earner couple decreased by 0.21 percentage points in 2018, as indicated in Table 1.5 (column 2), although it increased for 19 out of the 36 OECD countries and decreased in the 16 others. The tax wedge for the two-earner couple remained unchanged for Germany. There were no increases of more than one percentage point. Besides, for five of those countries with an overall increase, the changes were less than 0.20 percentage points. In contrast, decreases of more than one percentage point were observed for five countries: Hungary (1.12 percentage points), Belgium (1.20 percentage points), Latvia (1.56 percentage points), the United States (2.58 percentage points) and Estonia (3.57 percentage points).

In most countries with an increasing tax wedge, the change was mainly driven by higher income taxes. They accounted for the whole increase in the tax wedge in 15 countries: Australia, Austria, Canada, France, Iceland, Israel, Italy, Korea, Luxembourg, New Zealand, Poland, the Slovak Republic, Slovenia, Spain and Switzerland. In contrast, increasing total social security contributions were the main factor in Japan and Turkey. In Ireland and the Netherlands, income tax and total social security contributions increased evenly. However, most of those increases in income tax or social security contributions were augmented or alleviated by changes in cash benefits. In Ireland, the decrease in cash benefits as percentage of labour costs represented more than one third of the total increase in the tax wedge. In Iceland and Poland, the increase of cash benefits as percentage of labour costs alleviated the impact of increasing income taxes.

Figure 1.4. Income tax plus employee and employer social security contributions less cash benefits, 2018
For two-earner couples with two children, as % of labour costs
picture

Note: Two earner married couple, one at 100% and the other at 67% of the average wage, with 2 children. Includes payroll taxes where applicable.

 StatLink http://dx.doi.org/10.1787/888933922783

Table 1.5. Comparison of total tax wedge for two-earner couples with children, 2018
As % of labour costs

Country1

Total Tax wedge 2018 (1)

Annual change, 2018/17 (in percentage points)²

Tax wedge (2)

Income tax (3)

Employee SSC (4)

Employer SSC3 (5)

Cash benefits (6)

Belgium

45.1

-1.20

-0.60

0.08

-0.68

0.01

Germany

42.6

0.00

0.15

-0.12

-0.04

0.00

France

42.4

0.23

1.43

-1.91

0.67

-0.04

Italy

41.7

0.32

0.26

0.00

0.00

-0.06

Austria

40.3

0.27

0.32

0.02

-0.12

-0.05

Sweden

39.1

-0.17

0.12

0.00

0.00

0.29

Greece

38.4

-0.54

0.17

0.00

0.00

0.71

Finland

37.1

-0.26

-0.10

0.43

-0.62

-0.03

Slovak Republic

36.7

0.41

0.42

0.02

-0.15

-0.11

Turkey

36.4

0.18

-0.18

-0.06

0.42

0.00

Spain

36.3

0.15

0.15

0.00

0.00

0.00

Lithuania

36.3

-0.27

2.69

0.00

0.00

2.95

Hungary

36.2

-1.12

-0.09

0.31

-1.67

-0.33

Portugal

35.5

-0.77

-0.77

0.00

0.00

0.00

Slovenia

35.4

0.28

0.13

0.00

0.00

-0.14

Latvia

34.9

-1.56

-1.99

0.37

0.32

0.26

Czech Republic

34.8

-0.21

0.50

0.00

0.00

0.71

Norway

32.5

-0.08

-0.14

0.00

0.00

-0.06

Iceland

31.9

0.13

0.20

-0.01

0.00

0.06

Denmark

31.0

-0.06

-0.19

0.00

0.00

-0.14

Estonia

30.3

-3.57

-3.49

0.00

0.00

0.09

Netherlands

29.9

0.36

0.16

-0.06

0.24

-0.01

Japan

29.6

0.14

0.02

0.02

0.07

-0.02

Poland

27.1

0.10

0.26

0.00

0.00

0.16

Australia

27.0

0.35

0.35

0.00

0.00

0.00

United Kingdom

26.5

-0.08

-0.06

-0.03

-0.03

-0.05

Luxembourg

26.3

0.49

0.41

0.01

-0.08

-0.14

Ireland

24.7

0.29

0.10

0.00

0.08

-0.11

Canada

24.1

0.27

0.17

-0.01

-0.05

-0.16

United States

23.9

-2.58

-2.52

0.01

-0.07

0.00

Korea

20.7

0.57

0.42

0.08

0.07

0.00

Mexico

18.2

-0.45

-0.51

0.00

0.07

0.00

New Zealand

17.1

0.21

0.21

0.00

0.00

0.00

Israel

16.1

0.30

0.18

0.05

0.02

-0.05

Switzerland

16.1

0.21

0.15

0.00

0.00

-0.05

Chile

6.7

-0.01

0.00

0.00

0.00

0.01

Unweighted average

 

 

 

 

 

OECD Average

30.8

-0.21

-0.05

-0.02

-0.04

0.10

Note: Two-earner married couple, one at 100% and the other at 67% of the average wage, with 2 children.

1. Countries ranked by decreasing total tax wedge.

2. Due to rounding, the changes in tax wedge in column (2) may differ by one hundredth of a percentage point from the sum of columns (3)-(6).

3. Includes payroll taxes where applicable.

Sources: country submissions, OECD Economic Outlook Volume 2018 issue 2.

 StatLink http://dx.doi.org/10.1787/888933922821

Table 1.6. Income tax plus employee social security contributions less cash benefits, 2018
For two-earner couples with two children, as % of gross wage earnings

Country1

Total payment2 (1)

Income tax (2)

Employee social security contributions (3)

Cash benefits (4)

Gross wage earnings3 (5)

Switzerland

10.9

8.6

6.2

4.0

129 208

Luxembourg

16.0

11.3

12.3

7.7

114 787

Germany

31.5

11.1

20.4

0.0

112 314

Iceland

27.3

27.0

0.4

0.1

111 063

Netherlands

21.8

12.3

11.7

2.3

108 929

Belgium

30.4

21.3

14.0

4.9

104 172

Denmark

31.0

34.9

0.0

3.9

103 251

Austria

23.4

12.0

18.0

6.6

101 431

Ireland

16.5

16.8

4.0

4.3

100 084

Australia

22.6

22.6

0.0

0.0

99 876

Norway

23.7

17.9

8.2

2.3

95 459

United Kingdom

19.0

12.8

8.9

2.7

95 349

Korea

12.4

3.9

8.5

0.0

94 334

United States

17.6

9.9

7.7

0.0

91 769

Japan

18.9

7.2

14.5

2.8

86 587

France

22.6

13.1

11.9

2.4

86 012

Sweden

20.0

17.1

7.0

4.1

85 536

Finland

23.7

17.1

9.8

3.3

84 405

Italy

23.3

15.4

9.5

1.6

75 636

Canada

15.7

14.2

7.2

5.6

71 360

Spain

17.3

10.9

6.4

0.0

71 033

Israel

11.7

6.0

7.3

1.6

69 847

New Zealand

17.1

17.1

0.0

0.0

69 308

Greece

23.0

8.7

16.0

1.7

67 612

Slovenia

25.0

6.7

22.1

3.8

57 165

Portugal

20.2

9.2

11.0

0.0

53 217

Poland

15.2

4.6

17.8

7.3

52 565

Czech Republic

12.6

5.0

11.0

3.4

51 289

Turkey

26.0

11.0

15.0

0.0

50 222

Hungary

22.8

8.9

18.5

4.6

49 712

Estonia

6.8

10.1

1.6

4.9

49 492

Slovak Republic

17.3

6.7

13.4

2.8

41 996

Lithuania

16.4

11.3

9.0

3.9

41 267

Latvia

19.2

10.7

11.0

2.6

39 994

Chile

6.7

0.0

7.0

0.3

39 982

Mexico

7.9

6.6

1.3

0.0

21 801

Unweighted average

 

 

 

 

OECD Average

19.3

12.2

9.7

2.6

77 168

Notes: Two earner married couple, one at 100% and the other at 67% of the average wage, with 2 children.

1. Countries ranked by decreasing gross wage earnings.

2. Due to rounding total may differ by one tenth of a percentage point from aggregate of columns for income tax, social security contributions and cash benefits.

3. US dollars with equal purchasing power.

Sources: country submissions, OECD Economic Outlook Volume 2018 issue 2.

 StatLink http://dx.doi.org/10.1787/888933922840

Regarding the net personal average tax rate as a percentage of gross earnings the OECD average was 19.3% in 2018 for the two-earner couple with two children where one spouse earns the average wage and the other 67% of it. Table 1.6 shows the net personal average tax rates for the OECD countries and their components as a percentage of gross earnings. The household gross wage earnings figures in column 5 are expressed in terms of US dollars with equivalent purchasing power. Unlike the results shown in Table 1.3, in Table 1.6, cash benefits are taken into account and reduce the impact of the employees’ income taxes and social security contributions (columns 2 plus 3 minus column 4).

The net personal average tax rate on the two-earner couple varied greatly among OECD countries in 2018, ranging from 6.7% in Chile to 31.5% in Germany. In other terms, the disposable income of the household after tax represented 93.3% of the couple’s gross wage earnings in Chile while it represented 68.5% in Germany. Two other countries had a net personal average tax rate exceeding 30%: Belgium (30.4%) and Denmark (31.0%). At the other extreme, the net personal average tax rate was less than 10% in Mexico (7.9%) and Estonia (6.8%), as well as in Chile.

The Taxing Wages indicators focus on the structure of income tax systems on disposable income. To assess the overall impact of the government sector on people’s welfare other factors such as indirect taxes (e.g. VAT) should also be taken into account, as should other forms of income (e.g. capital income). In addition, non-tax compulsory payments that affect households’ disposable incomes are not included in the calculations presented in the publication, but further analyses on those payments are presented in the online report: http://www.oecd.org/tax/tax-policy/non-tax-compuslory-payments.pdf

Wages

Table 1.7 shows the gross wage earnings in national currency of the average worker in each OECD member country for 2017 and 2018. The figures for 2018 are estimated by the OECD Secretariat by applying the change in the compensation per employee in the total economy as presented in the OECD Economic Outlook (Volume 2018 issue 1) database to the final average wage values provided by OECD member countries. More information on the values of the average wage and the estimation methodology is included in the Annex of this Report.

The annual change in 2018 – shown in column 3 – varied between 0.8% in Japan and 12.1% in Turkey. To a large extent, the changes reflect the different inflation levels of individual OECD countries – see column 4 of Table 1.7. The annual change in real wage levels (before personal income tax and employee social security contributions) is within the range of -1% to +2% for 25 countries; see column 5 of Table 1.7. Ten of the remaining eleven countries show changes that are above this range: Slovenia (2.4%), Israel (2.7%), Korea (3.4%), the Slovak Republic (3.5%), Estonia (4.2%), Poland (5.1%), the Czech Republic (5.4%), Latvia (5.5%), Lithuania (6.1%) and Hungary (7.7%). In Turkey, the annual change in real wage before personal income tax and employee social security contributions was -4%.

In 26 out of the 36 OECD countries, taxpayers had higher real post-tax income in 2018 than in 2017 as real wages before tax increased faster or decreased slower than personal average tax rates; or the personal average tax rates decreased while the real wages before tax increased or remained unchanged; or the real wages before tax increased while the personal average tax rates remained unchanged (see column 6).

In contrast, taxpayers had lower real post-tax income in Australia, Austria, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Spain, Switzerland, Turkey and the United Kingdom:

  • The real wage before tax decreased whereas the personal average tax rate increased in Japan and Spain.

  • The personal average tax rate increased faster than the real wage before tax in Australia, Austria, Italy, Luxembourg, New Zealand and Switzerland.

  • The real wage before tax decreased faster than the personal average tax rate in Turkey and the United Kingdom.

  • The personal average tax rate increased while the real wage before tax remained unchanged in the Netherlands.

When comparing wage levels, it is important to note that the definition of average wage earnings can vary between countries due to data limitations. For instance, some countries do not include the wages earned by supervisory and managerial workers and not all countries exclude wage earnings from part-time workers (see Table A.4 in the Annex).

Table 1.8 provides more information on whether the average wages for the years 2000 to 2018 are based on industry sectors C-K inclusive with reference to the International Standard Industrial Classification of All Economic Activities, Revision 3 (ISIC Rev.3) or industry sectors B-N inclusive with reference to the International Standard Industrial Classification of All Economic Activities, Revision 4 (ISIC Rev.4).

Most OECD countries have calculated average wage earnings on the basis of sectors B-N in the ISIC Rev. 4 Industry Classification at least since 2008. Some countries have revised the average wage values for prior years as well. Average wage values based on the ISIC Rev. 4 Classification or any variant are available for all years for Australia, Canada, the Czech Republic, Estonia, Finland, Greece, Hungary, Iceland, Italy, Japan, Latvia, Lithuania, the Slovak Republic, Slovenia, Spain and Switzerland.

Australia (for all years) and New Zealand (years 2004 to 2017) have provided values based on the 2006 ANZSIC industry classification, divisions B to N, which substantially overlaps the ISIC Rev.4, sectors B to N. For New Zealand, the years prior to 2004 continue to be based on sectors C-K in ANZSIC. Turkey has provided values based on the NACE Rev.2 classification sectors B-N from 2007 onwards. Values for the years prior to 2007 are based on the average production worker wage (ISIC rev.3.1, sector D). The average wages are not based on the sectors B-N in the ISIC Rev. 4 Industry Classification for the Netherlands (from 2012 onwards) and Mexico (all years).

Table 1.7. Comparison of wage levels

Country

Gross wage in national currency

Annual change, 2018/17 (percentage)

2017 (1)

2018 (2)

Gross wage (3)

Inflation1 (4)

Real wage before tax (5)

Change in personal average tax rate2 (6)

Australia

83 336

85 778

2.9

2.0

0.9

1.2

Austria

46 002

47 120

2.4

2.1

0.3

1.2

Belgium

47 527

48 455

2.0

2.3

-0.3

-1.9

Canada

51 626

53 350

3.3

2.3

1.0

0.8

Chile

9 348 496

9 669 058

3.4

2.5

0.9

0.1

Czech Republic

355 633

383 304

7.8

2.2

5.4

2.1

Denmark

412 045

421 547

2.3

0.9

1.4

-0.4

Estonia

14 992

16 103

7.4

3.1

4.2

-18.5

Finland

43 245

43 984

1.7

1.1

0.6

0.1

France

38 600

39 436

2.2

2.2

0.0

-1.6

Germany

49 100

50 546

2.9

1.9

1.1

-0.2

Greece

20 841

21 214

1.8

0.8

1.0

0.7

Hungary

3 730 608

4 138 492

10.9

3.0

7.7

0.0

Iceland

8 760 000

9 152 462

4.5

2.6

1.8

0.6

Ireland

45 500

46 774

2.8

0.8

2.0

0.3

Israel

147 912

153 221

3.6

0.9

2.7

2.1

Italy

30 755

31 292

1.7

1.3

0.4

0.8

Japan

5 145 307

5 188 742

0.8

1.0

-0.2

0.3

Korea

45 853 704

48 166 599

5.0

1.6

3.4

3.2

Latvia

10 980

11 881

8.2

2.6

5.5

-3.5

Lithuania

10 216

11 121

8.9

2.6

6.1

-2.5

Luxembourg

58 238

59 497

2.2

2.0

0.1

1.7

Mexico

116 276

122 208

5.1

4.9

0.2

-7.6

Netherlands

50 730

51 567

1.6

1.7

0.0

0.5

New Zealand

58 824

60 360

2.6

1.7

0.9

1.7

Norway

578 745

596 477

3.1

2.7

0.3

-0.5

Poland

50 573

54 191

7.2

1.9

5.1

0.4

Portugal

17 998

18 343

1.9

1.3

0.6

-3.1

Slovak Republic

11 419

12 131

6.2

2.7

3.5

1.4

Slovenia

18 839

19 671

4.4

2.0

2.4

1.2

Spain

26 550

26 923

1.4

1.9

-0.5

0.8

Sweden

435 821

453 539

4.1

2.0

2.0

0.7

Switzerland

89 599

90 908

1.5

1.0

0.5

0.9

Turkey

41 843

46 921

12.1

16.8

-4.0

-0.5

United Kingdom

38 575

39 328

2.0

2.5

-0.5

-0.4

United States

53 376

54 951

3.0

2.5

0.5

-8.9

Notes:

1. Estimated percentage change in the total consumer price index.

2. Difference in the personal average tax rate of the average worker (single without children) between 2017 and 2018.)

Sources: country submissions, OECD Economic Outlook Volume2018 issue 2.

 StatLink http://dx.doi.org/10.1787/888933922859

Table 1.8. Average Wage Industry Classification

 

Years for which ISIC Rev. 3.1 or any variant (Sectors C-K) has been used to calculate the AW

Years for which ISIC Rev. 4 or any variant (Sectors B-N) has been used to calculate the AW

Australia1

2000-2018

Austria2

2004-2007

2008-2018

Belgium

2000-2007

2008-2018

Canada

2000-2018

Chile3

2009-2018

Czech Republic

2000-2018

Denmark4

2000-2007

2008-2018

Estonia

2000-2018

Finland

2000-2018

France

2000-2007

2008-2018

Germany

2000-2005

2006-2018

Greece5

2000-2018

Hungary

2000-2018

Iceland6

2000-2018

Ireland7

2008-2018

Israel8

2000-2012

2013-2018

Italy

2000-2018

Japan

2000-2018

Korea9

2000-2007

2008-2018

Latvia10

2000-2018

Lithuania

2000-2018

Luxembourg

2000-2004

2005-2018

Mexico11

Netherlands12

2000-2007

2008-2011

New Zealand13

2000-2003

2004-2018

Norway

2000-2008

2009-2018

Poland

2000-2006

2007-2018

Portugal

2000-2005

2006-2018

Slovak Republic14

2000-2018

Slovenia

2000-2018

Spain

2000-2018

Sweden

2000-2007

2008-2018

Switzerland

2000-2018

Turkey15

2007-2018

United Kingdom

2000-2007

2008-2018

United States

2000-2006

2007-2018

Notes:

1. Australia: based on ANZSIC06 such that the categories substantially overlap with ISIC 4, sectors B-N.

2. Austria: 2000-2003 average wage values are not based on the NACE (ISIC) classification.

3. Chile: the values for 2000 to 2008 are estimates deriving from the annual changes in the average wages based on “CIIU Rev.3” (2009=100) between 2000 and 2008, and the average wage for 2009 based on CIIU Rev.4 (2016=100). From 2009, the values are based on ISIC4.CL2012 sectors B ton R, excluding O (8422) “Defense Activities” and O (8423) “Public order and safety activities”.

4. Denmark: The AW values are based on sectors B-N and R-S (NACE rev 2).

5. Greece: the average annual earnings refer to full time employees for the sectors B to N of NACE Rev 2, including Division 95 and excluding Divisions 37, 39 and 75 for 2008 onwards.

6. Iceland: using national classification system that corresponds with the NACE rev. 2 classification system.

7. Ireland: Values from 2008 onwards are based on CSO table EHA05 for NACE rev.2 B-N. Values for prior years are the Secretariat's estimates, based on the growth rates of the average wages for sectors C to E in reference to NACE.

8. Israel: Information on data for Israel: http://oe.cd/israel-disclaimer.

9. Korea: average wage values are based on 6th Korean Standard Industrial Classification (KSIC) C-K for 2000-2001, 8th KISC C-M for 2002 to 2007 and 9th KISC B-N except E for 2008 onwards.

10. Latvia: Values are based on NACE rev.2 and cover the private sector that includes commercial companies with central or local government capital participation up to 50%, commercial companies of all types without central or local government capital participation, individual merchants, and peasant and fishermen farms with 50 and more employees.

11. Mexico: 2000-2018 AW values are based on the Mexican Classification of Economic Activities (Clasificación Mexicana de Actividades Económicas (CMAE)) which is based on one of the first versions of ISIC.

12. Netherlands: the average wages from 2012 onwards include all economic activities (sectors A to U from SBI2008). Values for the private sector only (sectors B to N) are not available.

13. New Zealand: see the note for Australia which applies from 2004.

14. Slovak Republic: average wage values based on ISIC Rev. 4 classification (B to N) and still include the self-employment data.

15. Turkey: the average wage is based on the average production worker wage ISIC rev. 3.1 sector D for years 2000 to 2006.

 StatLink http://dx.doi.org/10.1787/888933922878

Notes

← 1. Not all national statistical agencies use ISIC Rev.3 or Rev.4 to classify industries. However, the Statistical Classification of Economic Activities in the European Community (NACE Rev.1 or Rev.2), the North American Industry Classification System (US NAICS 2012). The Australian and New Zealand Standard Industrial Classification (ANZSIC 2006) and the Korean Standard Industrial Classification (6th to 9th KISC) include a classification which broadly conforms either with industries C-K in ISIC Rev. 3 or industries B-N in ISIC Rev.4.

← 2. Non-tax compulsory payments are requited and unrequited compulsory payments to privately-managed funds, welfare agencies or social insurance schemes outside general governments and to public enterprises (http://www.oecd.org/tax/tax-policy/tax-database.htm#NTCP).

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