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11/05/2011Wage taxes rise worldwide: Netherlands, Spain and Iceland amongst hardest hit

Workers will feel the pinch of increasing wage taxes as national social security charges rise.

The average tax and social security burdens on employment incomes rose in most countries in 2010, reversing a trend toward declining tax burdens seen in previous years, reveals a new OECD report. However, in most cases, any rise reported was small.

The OECD's annual Taxing Wages shows that tax burdens rose in 22 of the 34 OECD countries. The Netherlands, Spain and Iceland were among the countries experiencing significant increases, while Denmark, Greece, Germany and Hungary were among those showing the biggest drops.

Taxes on wages, including both employer and employee social security charges, are a key factor in companies' hiring decisions and individuals' incentives to work. The OECD suggests that , as part of efforts to restore public finances and put the economy on a higher growth path, governments should consider shifting the tax mix away from direct to indirect taxes (for instance by increasing recurrent taxes on immovable property) and broadening the VAT and personal income tax base by eliminating tax expenditures, rather than increasing personal income tax rates and social security charges.

The OECD report provides detailed analysis on the taxation of employment income across OECD countries and the distribution of this tax burden across different household types and levels of earnings. Taxing Wages also calculates the difference between the total cost to an employer of employing someone and that person's net take-home pay, including child benefits and other family benefits that are generally available to households. The "tax wedge" is derived as the total taxes paid by employees and employers net of cash transfers received divided by the employer's total payroll costs.

Click here to read the full report on the OECD site.


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