How much you pay in tax depends on personal allowances, tax rates and brackets, social security contributions and benefits; the numbers can start to get confusing.
One way to cut through the muddle is to think in terms of the tax wedge. In basic terms, this is the difference between the net earnings that a worker takes home at the end of the year and what it costs to employ that worker. On the employer’s side, this cost includes the worker’s salary as well as employer contributions for social security (e.g. healthcare, pensions); on the worker’s side, the negatives are income tax and employee social security payments, while the positives include the salary and, possibly, cash benefits, for instance.
The tax wedge ranges from just over 15% in Mexico for a single worker on an average wage, to just over 55% in Belgium.
There are also big variations within countries, depending on how much workers earn, their marital status and spouse’s earnings, and whether or not they are parents. Typically, the tax wedge is highest for well-paid singles with no children, and lowest for low-paid single parents with 2 children. For example, in New Zealand, those high-earner singles have a tax wedge of just under 25%; for low-paid parents it’s over minus 16% – meaning they get more back from the state than they pay in taxes.
This chart allows readers to look at the tax wedge in OECD countries from different angles:
- Earnings as a percentage of average earnings in a country (67%, 100% or 167%);
- Marriage and parental status;
- Marriage to another wage earner earning 33 or 67% of average country earnings.
Find out more:
- Taxing Wages, an OECD publication: www.oecd.org/ctp/taxingwages
- Charts and tables from Taxing Wages
- OECD work on tax
- see also www.oecdobserver.org/tax