Ireland Shows Largest Fall In 'Tax Wedge' Says Report

by Jason Gorringe, Tax-News.com, London

18 March 2004

‘Tax wedges’, or the difference between what employers pay out in wages and social security charges and what employees take home after tax and social security deductions, have been falling steadily in many OECD nations in the last seven years, according to a forthcoming report.

The OECD’s study entitled ‘Taxing Wages’, reports that the tax wedge for a typical married production worker with two children, as a percentage of the overall cost to the employer, has declined by around 1.5% over the last seven years across the 30 member countries of the organization.

The largest beneficiary of this trend has been Ireland, where between 1996 and 2003 there was an 18.3% reduction in the tax wedge, representing the biggest fall of all the nations featured in the report. Other significant decreases were seen in Hungary (9.9%), the United States (8.3%), Italy (8.2%) and the UK (7%).

However, many states experienced an increase in the tax wedge over the same period, with Iceland and Slovakia showing a 9.5% and 7.1% rise respectively.

The report, due out later in the Spring, will highlight the often vast differences in the rates of personal taxation, social security contributions and cash benefits for workers throughout the OECD. However, it also points out some commonalities, notably the fact that most nations offer significant tax benefits to those who are married with children.

For the single worker on an average income, figures from 2003 show that the tax wedge was highest in certain European nations, most conspicuously Belgium (54.5%) and Germany (52%). The lowest figures were seen in South Korea (14.1%) and Mexico (17.3%).

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