Growing tax wedge disincentive to employment creation
LONDON (Reuters) — Taxes on wages rose across industrialized countries last year, as governments sought to reduce budget deficits blown out by efforts to tackle years of economic weakness following the financial crash.
The Organisation for Economic Co-operation and Development (OECD), whose members include the world's richest nations, said the total burden of taxes on labour rose to 35.9 per cent in 2013 from 35.7 per cent in 2012.
The United States had the joint second-largest rise in the "tax wedge", which includes income taxes and the taxes employers pay on wages, following the expiry of a cut in payroll taxes last year.
However, the U.S. tax wedge of 31.3 per cent showed the gap between the cost to companies of employing staff and what U.S. workers receive was still lower in than in most other OECD countries.
The higher tax burden comes on top of falling real wages in several countries including the United States and Britain, the OECD said in its annual "Taxing Wages" survey.
The survey is based on a hypothetical individual at the income level of the average worker, rather than the higher earners hit by a 2013 tax rise pushed by President Barack Obama.
The OECD said the growing tax wedge was a disincentive to employment creation.
The Paris-based body believes lifting taxes on property and reducing tax breaks on pension saving for the better off, would be less damaging for employment and growth.
However, data across the OECD showed little correlation between employment and taxes on wages.
Belgium had the highest tax burden at 55.8 per cent last year but had an unemployment rate just fractionally above the OECD average.
Germany had the second highest tax burden at 49.3 per cent but the fourth lowest unemployment rate, according to data on the OECD website.
OECD statistician Maurice Nettley said the absence of direct correlation was probably due to the fact economies in the group differed so much and many other factors were at play.
Real wages before tax fell in a number of OECD members, most notably Greece, where they fell 6.7 per cent, as the country still struggles to recover from an economic crisis that led to two European Union bailouts.
Better off and poorer earners saw their tax burden increase last year but since 2007 low-paid workers with children have seen their burden drop relative to average and higher earners, the OECD said, thanks to targeted government support such as tax credits for the least well off.