The Tax Burden of Typical Workers in the EU 28
Insitut Économique Molinari // 01.08.2016
This July, the Institut Économique Molinari published the sixth edition of their annual EU-wide tax burden study. The study compares the tax and social security burdens of individual employees earning typical salaries in each of the 28 Member States. The purpose is to determine a “Tax Liberation Day” measuring how much of the year’s work is devoted to paying taxes for workers in each country. As it is updated each year, the study is able to track year-to-year trends in taxation on and cost of salaried labour in the EU 28.
Typical workers across the European Union saw their average “real tax rate” dip slightly this year, from 45.2 per cent to 45.0 per cent. Since 2010, this figure has risen by 1.0 per cent, mostly due to increases in VAT tax in 20 of the 28 Member States.
After five consecutive years, Belgium is no longer the country with the highest-taxed employees in Europe. Tax reforms enacted by Charles Michel’s government have reduced the real tax rate of Belgian workers from 59.47 per cent to 56.9 per cent. Belgian Tax Liberation Day therefore came nine days earlier this year, on July 27. However, due to increases in taxes on electricity, diesel fuel and alcohol, Belgian workers will likely have little or no extra cash in their pockets this year.
France is now the EU Member State that taxes labour at the highest rate of 57.67 per cent. As some social contributions (family allowances) decreased, others increased (sickness, old age, transport) and the percentage paid in income tax rose due to an increase in the average wage, there was no change in France’s Tax Liberation Day: July 29.
Austria saw big cuts in personal income tax rates this year, which translated into Austrians working 15 days less to pay their taxes than in 2015. On the other hand, Greece’s Tax Liberation Day on July 7 was 24 days later than it was in 2010.
The study highlights that, while the average “real tax rate” decreased by 0.23 per cent this year, hidden tax contributions continue to grow. Employer contributions to social security paid on top of gross salaries make up 44.4 per cent of all payroll taxes collected in EU countries and are largely invisible to employees.
Typical workers in countries with “flat tax” policies continue to be taxed at higher rates (45.7 per cent) than in “progressive tax” systems (44.8 per cent). This gap has persisted since 2010.
Europe’s ageing population is cause for a gloomy outlook on tax cuts. The demographic shift translates into higher pensions and health care expenditures with fewer workers to pay for these. Today 54.9 per cent of EU citizens are not in the labour force. This figure has grown by 1 per cent since 2010 and continues to worsen as Europe’s population grows older.
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