Increased Tax Burden on Labor in OECD Countries

The tax burden on labor increased last year in most countries of the Organisation for Economic Co-operation and Development (OECD), averaging just over a quarter of gross wages per worker, the OECD reported on Thursday.

Although the share of the tax burden in gross wages across 35 OECD countries averages just over 25 percent, there are significant differences among countries, according to the OECD’s annual report on wage taxation.

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The highest tax burden was recorded in Belgium at 40.5 percent and Germany at 39.9 percent of gross wages.

On the other hand, the lowest tax burden is recorded in Chile, at just 7 percent, and South Korea, at 14.5 percent.

The net average tax burden on labor – income tax and social security contributions reduced by tax reliefs, expressed as a share of gross wages – increased in 20 out of 35 OECD countries, mainly because higher wages reduced the effects of tax reliefs and credits.

The OECD report showed that taxes were significantly reduced for households with children due to cash transfers to parents. A married couple with two children and one employed person paid an average of 14 percent of gross wages.

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Tax reliefs for children have also been increasing since 2000, especially for single-parent families, which, for example, received more from the system in 13 countries than they paid into it.

After accounting for taxes borne by employers, the overall burden of labor taxation on average decreased for the fourth consecutive year in 2017, thanks to lower social security contributions that are the employer’s tax obligation, the OECD report showed.

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Finland, Hungary, and Luxembourg recorded particularly large reductions in the so-called tax wedge, which on average decreased in 16 countries. The tax wedge is the difference between the gross cost of labor for the employer and the net wage received by the employee, resulting from labor taxation.