Rising nominal wages cause tax increase for OECD labour in '22: Report

26 Apr '23

2 min read

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Insights

Rise of nominal wages in OECD has pushed workers into higher tax brackets, resulting in the increase of taxes for labour.
Effective tax rate rose in majority of the OECD countries in 2022.
Low-income households with children are most vulnerable to increases in their effective tax rates when tax and benefit systems are not fully adjusted for inflation.

Due to rising nominal wages pushing workers into higher tax brackets and reducing their eligibility for tax credits and cash benefits, taxes on labour in the Organization for Economic Cooperation and Development (OECD) increased in 2022, according to a new report. Moreover, high inflation across the OECD caused wages to decline in real terms, thereby resulting in a double blow for workers.

With inflation reaching its highest level in over 30 years in 2022, the effective tax rates rose in a majority of OECD countries across a range of income levels and household types, with a significant increase for families with children, particularly at lower income levels, as per OECD’s Taxing Wages 2023 report.

Different approaches OECD countries take to indexing tax and benefit systems to inflation reveal that 17 OECD countries automatically adjust personal income tax systems in line with inflation, while the remaining 21 do so on a discretionary basis. Social security contributions and cash benefits are automatically adjusted in 21 and 19 countries, respectively.

Low-income households with children are most vulnerable to increases in their effective tax rates when tax and benefit systems are not fully adjusted for inflation, the report highlighted.

For a single worker earning the average wage, the tax wedge ranged from 53 per cent in Belgium to 0 per cent in Colombia in 2022, averaging 34.6 per cent across the OECD as a whole.

Fibre2Fashion News Desk (DP)

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