The report, Taxing Wages 2018, is an annual flagship publication by the Organisation for Economic Co-operation and Development (OECD). It provides unique information 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.

Structure of the report

  • Chapter 1 contains an overview of the main results for 2017.
  • Chapter 2 contains the special feature on ‘Differences in the disposable incomes of households with and without children’.
  • Part I (International Comparisons) reviews the main results for 2016 and 2017.
  • Part II focuses on the historical trends in the tax burden for the period 2000-17.
  • Part III contains individual country tables specifying the wage levels considered and the associated tax burdens for eight separate family types, together with descriptions of each tax/benefit system.
  • The Annex describes the methodology and its limitations.

Key findings

In its 2018 edition, the report finds that the average worker in OECD countries pays just over one-quarter of their gross wages in income taxes and social security contributions, a ratio that has remained relatively stable over the last two decades—on average, the net personal average tax rate, defined as the sum of personal income tax and employee social security contributions, minus cash benefits as a percentage of gross wage earnings, was 25.5 percent for the average single worker in OECD countries in 2017. Belgium had the highest rate, at 40.5 percent, with Denmark and Germany being the only other countries with rates of more than 35 percent. Chile and Mexico had the lowest net personal average tax rates at 7 percent and 11.2 percent respectively. Korea was the only other country with a rate of less than 15 percent.

The report also looks at how tax systems affect the disposable income of households with children. It finds that almost all OECD countries provide a reduced personal average tax rate for households with children relative to households at the same income level without children. This is due primarily to the provision of cash transfers to parents. ‘This easing of the income tax burden on families with children, especially on single parents, is encouraging,’ said Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration. ‘Setting tax policy in a way that maintains work incentives, particularly for low and middle-income earners, is vital to spur inclusive growth.’

Overall, the report highlights,

  1. The average net personal average tax rate in the OECD was 25.5 percent in 2017 (no change since 2016).
  2. The average net personal average tax rate for single-earner families with children was 14.0 percent in 2017. Between 2016 and 2017, the net personal average tax rate for this family type increased in 25 countries, decreased in nine and remained unchanged in one country (Chile). Australia saw the largest increase for this family type between 2016 and 2017, which rose by 2.9 percentage points.
  3. The average tax wedge in the OECD decreased in 2017 relative to 2016.
  4. The average tax wedge for families with children in 2017 was 26.1 percent. The largest increase in the tax wedge for this family type was again in Australia, with 2.74 percentage points. However, the highest tax wedge for one-earner families with two children at the average wage was in France (39.4 percent), followed by Belgium, Finland, Greece, Italy and Sweden, with tax wedges between 38 and 39 percent.

 

(Source: Press release | Australia summary | Read the report | Brochure | Dataset)

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