06 Chapter 4 - Department of the Treasurycomparativetaxation.treasury.gov.au/.../downloads/06_Chapter_4.pdf · Chapter 4: Wage and salary taxation Page 61 Chart 4.3: Components of

Chapter 4Wage and salary taxation

Contents

Summary 57

4.1 Introduction 58

4.2 Broad international comparisons 594.2.1 Direct taxation mix in respect of individuals and payroll 594.2.2 Direct taxation in respect of individuals and payroll 604.2.3 History of average and marginal tax rates 624.2.4 Tax wedge 63

4.3 Description of tax rates 674.3.1 Personal income tax rates 674.3.2 Social security contributions rates 684.3.3 Payroll tax rates 68

4.4 Top marginal tax rate 69

4.5 Progressivity 75

4.6 Effective marginal tax rates 78

4.7 Description of the tax base 80

AppendicesAppendix 4.1: Tax wedge analysis 84Appendix 4.2: Net personal average tax rate analysis 93Appendix 4.3: Tax wedge family comparisons 101Appendix 4.4: Net personal average rate family comparisons 108Appendix 4.5: OECD-10-descriptive wage and salary taxation tables 114Appendix 4.6: Wage and salary taxation data 130

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4. WAGE AND SALARY TAXATION

SUMMARY

Australia’s total wage and salary tax take as a proportion of GDP is low compared with the OECD-30 and the OECD-10. While Australia’s individual income tax burden is relatively high compared to the OECD-30 and OECD-10, once social security contributions and payroll taxes are accounted for, Australia has the second lowest level of direct taxation on individuals and payroll in the OECD-10.

The components of wage and salary taxation considered in this chapter include personal income tax, social security contributions and payroll taxes.

Different countries use various methods of taxing wages and salaries and different methods of providing assistance to groups such as low income earners, families and the unemployed. In order to make meaningful comparisons, a comprehensive measure is required that considers all components of the tax burden. The most comprehensive measure available is the ‘tax wedge’. This measure encompasses the entirety of wage-based taxes imposed by governments, taking into account the interchangeablity of cash benefits and tax relief.

The average tax rate (total tax as a proportion of income) for a worker earning the male average wage in Australia has been steady at around 22 per cent over the past 40 years. The marginal tax rate (the rate of tax paid on an additional dollar of income) for the same worker has averaged around 35 per cent.

Australia’s personal income tax structure (including rates and base) has similar characteristics to the OECD-10 and OECD-30. Australia’s top marginal tax rate of 48.5 per cent is slightly higher than the average top marginal tax rate for both the OECD-10 (second highest) and the OECD-30 (eleventh highest). Australia’s threshold, to which the top marginal tax rate applies, is sixth highest in the OECD-10 and twelfth highest in the OECD-30. Based on available information, at least three of the OECD-10 (Canada, the Netherlands and the United States) automatically index their national personal income tax thresholds to inflation. Many of the other OECD-10 use some form of partial indexation.

The combined progressivity of Australia’s personal income tax system and welfare system is higher than for most of the OECD-10. This particularly reflects the targeted nature of the welfare system. However, it should be noted that progressivity does not in itself equate to equity.

Australia’s tax wedge is ranked amongst the lowest four in the OECD-10 for seven of the eight different family scenarios considered by the OECD. However, Australia’s tax wedge

International comparison of Australia’s taxes

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for a single person earning 167 per cent of the average wages1 is ranked fifth highest in the OECD-10. Australia’s tax wedge is ranked amongst the lowest eight in the OECD-30 for the eight different family scenarios.

As a result of Australia’s tightly targeted welfare system, effective marginal tax rates are generally ranked higher against the OECD-10 than is the case for average tax rates. Australia’s marginal tax wedge is ranked second highest in the OECD-10 for two of the eight family scenarios. Comparisons with the OECD-30 vary considerably depending on the income of the household.

Another measure of tax burden considered in this chapter is the net personal average tax rate. The net personal average tax rate includes personal income tax plus employee social security contributions minus cash benefits. Australia’s net personal average tax rate is generally higher than the OECD-10 average, but lower than the OECD-30 average. The marginal equivalent for this measure for the eight family types show that Australia generally has a higher net personal marginal tax rate than the OECD-10, while the results for the OECD-30 vary depending on the family type considered.

Comparisons between the different family situations are considered in Appendices 4.3 and 4.4. The comparisons show the effect of the tax treatment for singles and families, the inclusion of dependants for single- and dual-income families, and the tax burden for secondary earners entering the workforce.

• Generally, across all OECD-30 countries the tax wedge for single- and dual-income families decreases with the inclusion of children. Australia is no exception; in fact, the decrease in the tax wedge in Australia exceeds both the OECD-30 and OECD-10 average decrease for both the single- and dual-income families considered.

• Australia’s marginal tax wedge increases for families with dependent children owing to the phasing-out of cash benefits.

4.1 INTRODUCTION

Wage and salary income is often described as earned income and is distinguished from more passive forms of income such as investment income or capital income. More detail on capital income is considered in Chapter 7.

Wage and salary income is subject to three forms of direct taxation — personal income tax, social security contributions and payroll tax. All three of these aspects are considered in this chapter. For a discussion on social security contributions and Australia’s Superannuation Guarantee see Box 2.1.

This chapter presents a methodology for considering the overall tax and benefits position for households. This comprehensive measure is the tax wedge and it takes into consideration the key factors that determine an individual’s disposable income. Much of the analysis contained

1 Average wage is as defined by the OECD. This is explained in Box 4.2. In Australian dollar terms, 167 per cent of average wages in Australia in 2004-05 was A$85,452; 100 per cent of average wages in Australia in 2004-05 was A$51,169; 67 per cent of average wages in Australia in 2004-05 was A$34,283.

Chapter 4: Wage and salary taxation

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in Appendices 4.1 and 4.3 compares the tax wedge for a number of different family situations.

No single measure can capture all the salient aspects of any given taxation system. The optimal insight into a country’s taxation system is obtained through the collective consideration of all available measures, rather than through any particular measure in isolation.

This chapter also considers other important aspects of the personal income tax system such as the system’s rates and thresholds, progressivity and base.

Box 4.1: Tax wedge The tax wedge is a measure of the difference between the total labour cost to an employer and the corresponding disposable income of an employee. The tax wedge is the sum of personal income tax (at all levels of government), employee and employer social security contributions (SSC) and payroll taxes minus any cash benefits from government welfare programmes. The tax wedge is usually expressed as a percentage of the total labour costs. This measure is illustrated diagrammatically in Chart 4.1.

Chart 4.1: Illustration of the tax wedge

Labour costs

Net wages

Income tax

Employee SSC

Employer SSCPayroll tax

Net wages

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Tax wedge

4.2 BROAD INTERNATIONAL COMPARISONS

4.2.1 Direct tax mix in respect of individuals and payroll

Like other OECD countries, Australia raises the majority of its taxation revenue (60.9 per cent in 2003) from direct taxation levied on incomes — wages, salaries and profits, however, the


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composition of Australia’s taxation of earned income is different from that of most other OECD countries (Chart 4.2 and 4.3).

As discussed in Chapter 3, payroll taxes are levied on a similar basis to social security contributions and as such are considered a form of tax on labour. While it is difficult to substantiate the actual incidence of payroll taxes, it is widespread practice to assume that taxes levied in respect of remuneration are ultimately borne by the employee.

Chart 4.2 compares Australia’s direct tax mix in respect of individuals and payroll with the average for the OECD-10. Australia’s income tax from individuals accounts for over 85 per cent of the total direct tax mix in respect of individuals and payroll, compared with the average for the OECD-10 of around 60 per cent of the total tax mix. Social security contributions and payroll taxes account for the remaining 40 per cent of the total tax in respect of individuals and payroll for the OECD-10.

Chart 4.2: Australia’s direct tax mix in respect of individuals and payroll OECD-10, 2003

Australia OECD-10 unweighted average

Individuals' income tax

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Source: OECD Revenue Statistics, 2005.

4.2.2 Direct taxation in respect of individuals and payroll

As discussed in detail in Appendix 3.1, classification issues make comparisons of the headline income tax burden on individuals difficult. Despite these limitations, including the need to exercise care when analysing income tax data disaggregated into its personal and corporate components, this is the most frequent measure used in commentary about tax burden.

Chart 4.3 compares Australia’s direct tax burden in respect of individuals and payroll with the OECD-10. Casual observers often conclude that Australia has relatively high levels of taxation on individuals’ incomes because Australia’s individual income tax burden is second highest in the OECD-10.

However, once social security contributions and payroll taxes are accounted for, Australia has the second lowest level of direct taxation on individuals and payroll in the OECD-10 (14.0 per cent of GDP). This is below the unweighted average of 16.3 per cent of GDP. In Japan, the Netherlands and Spain, social security contributions are a larger source of taxation revenue than individuals’ income tax.


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Chart 4.3: Components of direct taxation in respect of individuals and payrolls(a) OECD-10, taxation revenue as a proportion of GDP, ordered by tax burden, 2003

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(a) For the purpose of international comparison, there are significant risks in relying on disaggregated data, especially in

disaggregating taxes on income, profits and capital gains into its individuals, corporate and other components. A description of these is provided in Appendix 3.1.

Source: OECD Revenue Statistics, 2005.


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Australia has always had a low tax burden in respect of individuals and payroll, when compared with the OECD-10 (Chart 4.4). In fact, Australia’s tax burden has on average been around 20 per cent lower than the OECD-10 over the period since 1965.

Chart 4.4: The Australian personal tax burden in perspective OECD-10, total direct taxation revenue in respect of individuals and payroll

as a proportion of GDP, 1965-2003

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Source: OECD Revenue Statistics, 2005. Over the past 40 years Australia’s personal tax burden has increased from around 8 per cent of GDP to 14 per cent of GDP. After an increase in the tax burden in the early 1970s, the burden has remained relatively stable between 13 and 16 per cent of GDP.

4.2.3 History of average and marginal tax rates

Chart 4.5 shows the top marginal tax rate, the marginal and average tax rates applicable to a male earning an average wage (male total average weekly earnings or MTAWE). Both measures include the Medicare levy where applicable.


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Chart 4.5: Marginal and average personal tax rates Australia, 1965-66 to 2004-05

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Source: Australian Treasury estimates. Australia’s top marginal tax rate has decreased over the past 40 years from almost 70 per cent to its current level of 48.5 per cent (including the Medicare levy). The marginal tax rate for MTAWE has ranged from 28 per cent to 47 per cent. Since 2000-01, the marginal tax rate for a person on MTAWE has been 31.5 per cent (including Medicare levy).

The average tax rate (total tax as a proportion of income) for a person on MTAWE in Australia has been steady at around 22 per cent over the past 40 years. In comparison, the marginal tax rate (the rate of tax paid on an additional dollar of income) for the same person has averaged around 35 per cent.

4.2.4 Tax wedge

The tax wedge captures the overall difference between the disposable income of an employee and the corresponding costs incurred by their employer. It is the standard measure used for comparing tax burdens on wage income across countries and through time and is the cornerstone of the OECD’s publication Taxing Wages.

Tax wedge analysis demonstrates how personal income tax, social security contributions paid by employees and employers and cash benefits affect various types of families in different countries in the OECD. This allows for a country-based comparison of labour costs and the overall tax and benefit position of families. This analysis is discussed in greater detail in Appendix 4.1. Another measure of tax burden is the net personal average tax rate and this is considered in Appendix 4.2.

Chart 4.6 shows the composition of the tax wedge for the OECD-10 for an average worker with no dependent children. Cash benefits are not included as the average worker with no children does not receive any cash benefits in any OECD country. Chart 4.6 shows that the


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tax wedge for an average worker with no children in Australia is the fourth lowest in the OECD-10.

Chart 4.6: Tax wedge for an average worker OECD-10, 2005(a)

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(a) Refers to a single average worker with no dependants. The tax wedge includes income tax plus employee and employer

social security contributions. The OECD’s Taxing Wages publication includes payroll taxes in its treatment of employer social security contributions.

Source: OECD Taxing Wages, 2005.

Chart 4.7 shows the composition of the tax wedge for an average worker with no children in Australia against the OECD-10. This shows that while Australia’s structure of direct taxes on individuals and payroll varies from the average, the end result is that the proportion of labour costs that the average worker receives as disposable income in Australia is very similar to that for the average worker for the OECD-10. The actual disposable income depends on the wage levels as well as tax wedges.


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Chart 4.7: Comparison of the tax wedge components for an average worker(a) Australia and OECD-10, 2005

Australia OECD-10 unweighted average

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(a) Refers to a single average worker with no dependants.

Source: OECD Taxing Wages, 2005. The tax wedge varies depending on the level and composition of the family and private income. In order to compare tax systems, the OECD calculates tax wedges for eight different hypothetical family scenarios. Appendix 4.1 outlines these family scenarios and illustrates and compares the tax wedge across the OECD-30. Comparisons between the different family scenarios are considered in Appendix 4.3. The comparisons show the effect of the inclusion of dependants for single-and dual-income households as well as the effect of secondary earners entering the workforce.

In summary, the tax wedge for workers in Australia is consistently ranked among the lowest eight in the OECD-30 for each of the eight family types considered and among the lowest six in the OECD-10 countries. Australia’s tax wedge is lower than the average for the OECD-10 for all eight scenarios except for a single-income person earning 167 per cent of average wages.

Another measure of the tax burden is the net personal average tax rate. The net personal average tax rate is a measure of the employee’s total wage-based tax burden. The net personal average tax rate can be described as a measure of a family household’s wage-based disposable income, and is important since it is a measure of the employee’s incentive to increase the number of hours they work or to seek promotion.

The net personal average tax rate is the sum of personal income tax plus employee social security contributions, minus cash benefits as a percentage of gross wage earnings. That is, this measure excludes employer social security contributions and payroll taxes and the base is gross wages rather than total labour costs. The results of the net personal average tax rate for the eight different family types are contained in Appendix 4.2.


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Australia’s net personal average tax rate is generally higher than the average for the OECD-10 with two exceptions, sole parents with two children earning 67 per cent of average wages and single-income families with two children earning 100 per cent of average wages.

Box 4.2: Measures of wage earnings

The wage measure used in this chapter is the average wage for an average worker (AW). This measure is the OECD’s average wage measure and therefore allows for international comparisons. The average wage is the average gross wage for persons engaged in full-time manual or non-manual labour for a certain range of industries.2

In 2004-05 Australia’s average wage was A$51,169 (on a US dollars purchasing power parity basis this is US$36,851).

The OECD’s average wage measure differs from other commonly used average wage indicators in Australia.

One measure of wage earnings is average weekly ordinary time earnings for full-time adults (AWOTE). This measure includes all cash earnings of an employee which are received on a regular and recurring basis but excludes overtime payments. The average value of AWOTE for 2004-05 was A$51,206.

Another Australian measure of wage earnings is average weekly earnings (AWE). AWE is calculated on both full-time and part-time workers. AWE includes all cash earnings of an employee which are received on a regular and recurring basis, such as ordinary time and overtime payments. The average value of AWE for 2004-05 was A$40,356.

Male total average weekly earnings (MTAWE) is the same as AWE, but is calculated across males only. MTAWE has been used in the analysis in Chart 4.8 as it is the only wage series in Australia that is available back to 1960s. In 2004-05, MTAWE was around A$48,056.

Chart 4.8 shows the average wage across the OECD-10 on a purchasing power parity basis.

2 The average gross wage of a person engaged in full-time manual or non-manual labour in industry sectors C-K (inclusive) in the international classification. For Australia these sectors are: manufacturing, electricity gas and water, construction, wholesale trade, retail trade, accommodation, cafes and restaurants, transport and storage, communication services and finance and insurance.


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Box 4.2: Measures of wage earnings (continued)

Chart 4.8: Gross wage earnings for an average worker OECD-10, 2005 (US dollars)

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4.3 DESCRIPTION OF TAX RATES

This section sets out the key attributes of the rate schedules for personal income tax, social security contributions and payroll taxes. The rates for the various components of wage and salary taxation impact on the tax wedge analysis.

4.3.1 Personal income tax rates

All of the OECD-10 have progressive personal income tax rates (that is, the average tax rate rises with income) with multiple rates and thresholds (progressivity is covered in greater detail in section 4.5).

Australia’s personal income tax system is progressive through the application of the A$6,000 tax free threshold and marginal tax rates for graduated levels of income. In addition, the low income tax offset ensures low income taxpayers with income up to A$21,600 have a tax free threshold of A$7,567 in 2005-06.

Based on available information, at least three of the OECD-10 automatically index their national income tax thresholds to inflation each year (Canada, the Netherlands and the United States). Canada introduced indexation of national income tax thresholds in 2000. Thresholds are indexed by the increase in the consumer price index for the period ending on 30 September of the preceding taxation year. The Netherlands indexes for inflation at the beginning of each year. The United States indexes its tax thresholds annually to inflation. Most US states do not index their tax thresholds.


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Other countries do not appear from the available information to have automatic indexation based on a legislative requirement to increase thresholds in line with inflation each year and instead rely on discretionary regular adjustments or other adjustment systems. Switzerland is required to make an adjustment after the cumulative inflation rate has increased by at least seven per cent since the last adjustment. Spain indexes its tax thresholds at 2 per cent to mitigate the effects of inflation. The United Kingdom also indexes thresholds by the increase in the retail price index unless the Parliament specifies this is not to occur.

In addition to national taxes, based on available information, four of the OECD-10 levy income tax on a sub-national basis (Canada, Japan, Switzerland and the United States). Analysis of the overall personal tax burden must take into account these taxes (national and sub-national tax rate schedules are documented in Appendix 4.5). Sub-national taxes may include state or provincial taxes as well as taxes levied at a local or municipal level.

The effect of the personal income tax rates for all levels of government is included in the tax wedge analysis.

4.3.2 Social security contributions rates

Social security contributions are payments to institutions of general government that are earmarked to provide social security benefits.

Examples of social security benefits funded through social security contributions include: unemployment insurance benefits and supplements; accident, injury and sickness benefits; old-age, disability and survivors’ pensions; family allowances; reimbursements for medical and hospital expenses and provision of hospital or medical services.

Social security contributions are usually levied on both employees and employers and there are generally separate contributory structures for different types of schemes. Generally social security contributions are levied as a function of gross earnings, payroll or the number of employees.

Social security contributions are generally imposed at a flat rate, however they can be progressive or regressive. They are generally applied up to a maximum level.

Rates and maximum levels vary greatly between countries which makes comparisons difficult (detailed information is contained in Appendix 4.5 in local denomination).

The OECD reports (OECD 2001) that while income taxes are progressive in all OECD countries, employee social security contributions are either neutral or regressive, particularly at high income levels.

4.3.3 Payroll tax rates

Payroll taxes are levied on a similar basis to social security contributions and as such classified as a tax on labour. While robust incidence analysis is extraordinarily difficult, it is widespread practice to assume that taxes levied in respect of remuneration are ultimately borne by the employee.


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Unlike employer social security contributions, payroll taxes are not collected for the specific purpose of funding social security programmes.

Payroll taxes can be paid by employers, employees or the self-employed either as a proportion of payroll or as a fixed amount per person.

4.4 TOP MARGINAL TAX RATE

Chart 4.9 shows the top marginal tax rate3 for all OECD countries and the threshold to which the top marginal tax rate applies. The top marginal tax rate threshold is expressed as a multiple of the OECD’s measure of average wages (see Box 4.2).

Chart 4.9: Top marginal tax rates and thresholds (unweighted averages) OECD-30, 2005

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Source: OECD Tax Database (preliminary data). In 2004-05 Australia’s top marginal tax rate applied to incomes over A$70,000. This equated to around 1.4 times average wages. The top marginal tax rate in 2006-07 will apply to incomes over A$125,000. This equates to around 2.2 times average wages. Australia’s top marginal tax rate is 48.5 per cent (including the Medicare levy). Chart 4.9 includes unweighted OECD-30 averages for the top marginal tax rate and the top threshold. The unweighted OECD-30 average threshold is 2.4 times average wages and the unweighted OECD-30 average top marginal tax rate is 46.7 per cent.

Australia’s top marginal tax rate is eleventh highest in the OECD-30. The threshold to which Australia’s top rate applies is currently ninth lowest in the OECD-30. However, changes to the threshold from 1 July 2006 will result in Australia’s ranking moving to twelfth highest in the OECD-30.

3 The top marginal tax rate is the all-in top marginal tax rate as calculated by the OECD. The all-in top marginal tax rate includes national and sub-national government personal income tax, plus employee social security contributions (as well as the impact of deductibility of social security contributions from national government taxes), resulting from a unit increase in gross wages.


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Chart 4.10: Top marginal tax rates and thresholds (unweighted averages) OECD-10, 2005

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Chart 4.11 replicates Chart 4.9 but uses GDP OECD-30 weighted averages rather than OECD-30 unweighted averages.

Chart 4.11: Top marginal tax rates and thresholds (weighted averages) OECD-30, 2005

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weighted average threshold is higher than the individual threshold for every other OECD country.

Chart 4.12 shows the change in the top marginal tax rate for the OECD-30 from 2000 to 2005.

Chart 4.12: Top marginal tax rates OECD-30, 2000 and 2005

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Source: OECD Tax Database (preliminary data). Since 2000, seventeen countries in the OECD-30 have reduced their top marginal tax rate by varying magnitudes. This includes six countries in the OECD-10. Nine countries in the OECD-30 have increased their top marginal tax rate including two of the OECD-10. Australia is one of four countries in the OECD-30 that has not changed the top marginal tax rate (one of two in the OECD-10).

Chart 4.13 shows the change in the top statutory marginal tax rate for the OECD-30 from 2000 to 2005. The statutory rate is a partial measure that only includes the combined national and sub-national personal income tax rates. It does not include employee social security contributions.


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Chart 4.13: Top statutory marginal tax rate OECD-30, 2000 and 2005

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Per cent Per cent

Aus

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Source: OECD Tax Database (preliminary data). Since 2000, nineteen countries in the OECD-30 have reduced their top statutory marginal tax rate by varying magnitudes. This includes five OECD-10 countries. Only two countries in the OECD-30 increased the top statutory marginal tax rate (only one in the OECD-10). Australia is one of nine countries in the OECD-30 that has not changed the top statutory marginal tax rate (one of four in the OECD-10).

Charts 4.12 and 4.13 are limited to changes in marginal tax rates and do not consider movements in thresholds. In Australia’s case, the threshold to which the top marginal tax rate applies has increased from A$50,000 in 1999-00 to A$70,000 in 2004-05 and will move to A$125,000 in 2006-07.


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Box 4.3: Australia-United States comparison4

Calculating the tax wedge can be highly dependent on the location of the individual even within a country.

A highly stylised cameo that illustrates the difference in the tax wedge across and within countries is to compare a single high-income earner in Sydney to a single high-income earner in New York, Los Angeles and Houston.

The results in the table below illustrate the importance of taking into consideration all elements of the tax wedge when making international comparisons.

An analysis of the tax wedge includes the impact of federal, state, and city income taxes, social security contributions, the Medicare levy and payroll taxes. The analysis allows for state and local taxes to be claimed as a deduction from United States federal income tax. United States taxpayers are also entitled to a ‘personal exemption’ on their federal income tax. However, the analysis does not take into consideration the full range of deductions, such as work related deductions, that are available to the taxpayer in each country.

All-in tax wedge — single individual, no dependants Income A$ Australia — Sydney

resident 2006-07 (per cent)

United States — New York city resident 2006-07 (per cent)

United States – Los Angeles resident 2006-07 (per cent)

United States – Houston resident 2006-07 (per cent)

100,000 34.9 38.2 36.8 30.7

125,000 37.2 39.8 38.7 32.4

150,000 39.6 39.6 38.5 32.1 Source: Australian Treasury calculations; United States Revenue Service; New York State Department of Taxation and Finance; Californian Franchise Tax Board; Texas Workforce Commission.

4 Rates, thresholds and deductions for the New York state and city analysis are based on the latest information. However, New York State’s budget is currently under negotiation and some items could change retroactively for tax year 2006. Calculations for Los Angeles are based on the latest Californian tax rates in 2005 (2006 rates are not available until August). Texas does not levy state personal income tax.


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Box 4.4: Flat income tax systems in Eastern Europe

Over the past ten years there has been an increase in the number of flat income tax systems, especially in Eastern Europe. Flat income tax systems have been adopted in Estonia (1994), Lithuania (1994), Latvia (1995), Russia (2001), Serbia (2003), Slovakia (2004), the Ukraine (2004), Georgia (2005) and Romania (2005).

A pure flat income tax system taxes income at the same percentage rate along the full range of income. Most countries that have a flat income tax system also have either tax credits or a tax free threshold which adds a degree of progressivity to the system.

The main reasons that flat income tax rate systems have been adopted in Eastern Europe are:

• to encourage higher compliance with the tax system. Tax administration in some economies was extremely weak, with significant informal economic activity outside the tax system;

• to reduce complexity. Many of the economies in Eastern Europe that have adopted flat income taxes had various taxes at a range of rates that made it difficult for taxpayers to understand their tax obligations; and

• as part of broader tax reform to join the European Union.

Economies that have adopted flat income tax systems tend to have high levels of social security contributions. In many of the Eastern European economies social security contributions are the main element of the tax burden on labour.

The effect of introducing a flat income tax system on the tax burden can be illustrated by considering the experience in the Slovak Republic. This is the only ‘flat tax country’ in Eastern Europe that is a member of the OECD and as such is the only economy where OECD data are available on the tax wedge. The taxation of labour income in the Slovak Republic is similar to other Eastern European economies as social security contributions greatly exceed personal income taxation revenue.

In 2003, the personal income tax system in the Slovak Republic had five income brackets, with tax rates varying from 10 per cent to 38 per cent. A taxpayer on average earnings would face a marginal tax rate of 20 per cent. The corporate tax rate was 25 per cent, while the VAT rate was 20 per cent. In 2004, all of these rates were replaced with a flat tax rate of 19 per cent. The introduction of the flat rate was combined with a large increase in the basic allowance (it was more than doubled) and the removal of many forms of tax relief which led to a broadening of the tax base.


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Box 4.4: Flat income tax systems in Eastern Europe (continued)

Table 4.1 compares average income tax rates and the tax wedge for a single individual in 2003 and 2004 (before and after the introduction of a flat tax system) for different percentages of average earnings. Despite the introduction of a flat income tax system, there have only been small changes in the tax wedge facing individuals for different income levels (see Table 4.1).

Table 4.1: Average income tax and tax wedge for a single individual before and after Slovak reform (2003 versus 2004)

67% of average wages 100% of average wages 167% of average wages

2003 2004 2003 2004 2003 2004

Income tax (per cent)

4.8 3.7 6.3 7.9 10.7 11.3

Tax wedge (per cent)

40.3 38.8 41.4 42.0 44.6 44.5

Source: OECD An International Perspective on Japanese Tax Reform, 2006.

Russia also introduced a flat income tax system in 2001. A single 12 per cent rate replaced a progressive schedule with rates of 12, 20 and 30 per cent; various exemptions from tax were eliminated; social security contribution rates were reduced; and the maximum tax free threshold was increased. As Russia is not a member of the OECD there is no comparative tax wedge data available to analyse the net effect of these changes.

4.5 PROGRESSIVITY

Progressivity measures the extent to which the income tax burden increases with income. Hence a more progressive tax system would have people on higher incomes paying a higher proportion of their income in tax than people on lower incomes.

Progressive personal income tax systems reflect the redistributive role played by governments. Progressive taxes are characterised by an increasing average rate of tax as income rises. As such (and in the absence of negative taxes), the marginal personal income rate of tax must lie above the average rate of tax.

However, it should be noted that progressivity does not in itself equate to equity. A progressive system may not be equitable if it results in a large number of higher income earners avoiding or evading taxes. The measure of progressivity discussed below is only relevant to questions of vertical equity. More broadly the progressivity of a tax system does not measure the equity of various expenditures. Lastly, a more progressive tax and welfare system generally results in higher effective marginal tax rates.

There are different measures of progressivity which vary in complexity. It is beyond the scope of this study to provide an in-depth analysis of these methods.

The OECD (OECD 2006) has developed a simple measure of determining progressivity. Using this methodology Chart 4.14, compares the progressivity of the tax wedge for a single


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individual with no dependants on 67 and 167 per cent of average wages.5 Higher numbers indicate higher progressivity.

Chart 4.14: Progressivity between 67 and 167 per cent average wages(a) OECD-10, 2005

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(a) Comparison for a single worker with no dependants. Source: OECD Taxing Wages, 2005. On this measure, Australia has the second most progressive tax system in the OECD-10 after Ireland for single incomes between 67 per cent of average wages and 167 per cent of average wages.

An OECD report (Whiteford 2005) shows that, of the 24 OECD countries considered in this study, Australia has the most progressive distribution of benefits on two different measures (Chart 4.15). This is the result of the relatively tightly targeted nature of Australia’s welfare system. The study also calculates a measure of churning (the notion that households can be both recipients of welfare and taxpayers simultaneously) across OECD countries where data were available. The results shows that Australia has the lowest level of churning across those countries.

5 Progressivity between 67 to 167 per cent average wages is calculated by ((T167-T67)/T167) where T167 is the tax wedge at 167 per cent average wages and T67 is the tax wedge at 67 per cent average wages.


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Chart 4.15 shows progressivity of transfers through a ratio of the benefits received by the poorest quintile to benefits received by the richest quintile for the total population for the OECD-10.

Chart 4.15: Progressivity of transfers OECD-10, around 2000

0

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Source: Whiteford, OECD (2005).


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Chart 4.16 shows Whiteford’s measure of churning6 as a percentage of household disposable income and as a percentage of direct taxes. In both measures Australia has the lowest level of churn. Caution should be exercised when interpreting these results as the tax mix within a country can significantly affect the results. For example, countries with a high reliance on indirect taxes will have a high percentage of churn as a percentage of direct taxes.

Chart 4.16: Measures of churn Sub-set of OECD-10, 2000(a)

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Per cent Per cent

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(a) Data on Spain not available. Source: Whiteford, OECD (2005).

4.6 EFFECTIVE MARGINAL TAX RATES

Effective marginal tax rates measure the percentage of a one dollar increase in income that is lost to income tax and income tests on government payments and services.

Appendices 4.1 and 4.2 detail results for the marginal tax wedge and the net personal marginal tax rate which are measures of effective marginal tax rates at specified income levels.

The results show that Australia’s marginal tax wedge and net personal marginal tax rate are generally relatively higher than the other OECD-10 countries. Again this is the result of the relatively tightly targeted nature of Australia’s welfare system.

Effective marginal tax rates can also be adjusted to take account of other factors that influence the decision to enter the workforce. One factor is child care which is considered in Box 4.5.

6 Churning is calculated by comparing the level of transfers by each decile with the level of direct taxes (income taxes and employee social security contributions) paid by each decile. Where transfers exceed taxes, the churning is the level of taxes and where taxes exceed transfers, churning is the level of transfers. This measure of churning only counts direct financial transfers, not indirect transfers through subsidised services such as health and education.


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Box 4.5: Child care

A range of different measures are used to provide assistance for families who use child care. These measures can be delivered either through the tax system or through direct payments.

In some countries, child care payments are tax deductible. This approach can reduce the progressivity of the tax system. Other countries use tax credits and direct payments such as child care-related means-tested payments. These payments tend to be targeted towards low-income families or socially disadvantaged groups such as sole parents and are progressive because they are higher at lower levels of income. Support is sometimes available for parents caring for their own children at home (home-care or child-raising allowances).

Some countries, including Australia, use a combination of tax and direct payments. For example, Australia provides assistance through the Child Care Benefit (a means-tested payment) and the Child Care Tax Rebate (a non-refundable tax credit).

The OECD quantifies (OECD 2005) the net cost of purchasing centre-based child care (including the impact of child care related tax concessions and cash benefits available to parents) and provides an estimate of the effective tax burden including child care costs.

Chart 4.17 shows secondary earners and sole parents in Australia have the third lowest increase in the effective tax burden (including child care costs) as a per cent of gross earnings when starting a new job compared to the OECD-10. The effective tax burden includes the effect of income taxes, employees’ social security contributions, cash benefits as well as child care costs.

Chart 4.17: Effective tax burden including child care costs for secondary earner Sub-set of OECD-10, 2002(a)

82.4

100.8

79.2

63.9

67.1

63.072.5

77.7 77.9

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Child care feesDecrease in cash benefitsIncrease in social security contributions

Increase in income taxTotal increase in effective tax burden and child care costs

Per cent of gross earnings in new job Per cent of gross earnings in new job

Aus

tral

ia

(a) Data on Spain not available. Source: OECD (2005).


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Box 4.5: Child care (continued)

Chart 4.18: Effective tax burden including child care costs for sole parent Sub-set of OECD-10, 2002(a)

96.692.486.6

78.0

40.9

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140Per cent of gross earnings in new job Per cent of gross earnings in new job

Aus

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Child care feesDecrease in cash benefitsIncrease in social security contributions

Increase in income taxTotal increase in effective tax burden and child care costs

(a) Data on Spain not available. Source: OECD (2005). This analysis is based on 2002 data and as such does not reflect recent policy initiatives, including in Australia’s case the Child Care Tax Rebate.

4.7 DESCRIPTION OF THE TAX BASE

Personal income tax systems are founded on an income base. Typically, a country’s assessable personal income base may include the following items: wages; salaries; allowances; tips; capital income (dividends, capital gains, interest payments and royalties); rents; partnership income; distribution from trusts; fringe benefits; imputed rents from owner-occupied housing; and income transfers (pensions, disability compensation, unemployment benefits and sick pay).

The majority of the OECD-10 include fringe benefits in the taxable income base. Nonetheless, most countries have a number of concessions and exclusions for fringe benefits in the tax base. Australia and New Zealand are the only two countries in the OECD-10 that levy a separate fringe benefits tax (see Appendix 4.5).

To calculate taxable income, assessable income is reduced by deductions. Deductions can be broadly categorised into personal allowance deductions and specific deductions.


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Personal allowance deductions

Personal allowance deductions are provided on the basis of the individual’s family situation rather than their financial situation.

In many of the OECD-10, a personal allowance is provided with higher amounts paid to married couples with dependants. Personal allowances are provided in Ireland, Japan, the Netherlands, Spain, Switzerland, the United Kingdom and the United States.

An alternative to a personal allowance deduction is a tax free threshold. Australia has a tax free threshold rather than a personal allowance.

In addition, countries may operate a system of tax credits (or offsets) which are applied against a person’s tax liability rather than their income. In Canada a basic credit reduces a person’s tax liability but is available to all individuals and as such is equivalent to a tax free threshold.

Specific deductions

The majority of the OECD-10 countries allow for work-related deductions that are directly related to gaining or producing assessable income.

Table 4.2: Deduction for work-related expenses for OECD-10 Country Work-related expenses Comment

Australia Yes Directly related to gaining or producing an employee’s assessable income.

Canada Limited Only deductions specifically legislated are allowed, for example, accounting and legal fees are allowable deductions.

Ireland Yes Expenses incurred wholly, exclusively and necessarily in the performance of duties.

Japan Limited Specific deductions which exceed the standard deduction for employment income are allowed. Specific deductions include travelling expenses.

Netherlands Yes All expenses which are necessary to collect or maintain income.

New Zealand Limited Condition excludes expenditure that is of a capital nature, private, nature, exempt income, and non-residents’ foreign-sourced income nature, and also limits employment expenses due to withholding taxes.

Spain No Only a general standard deduction is available. Expenses relating to employment are generally not deductible.

Switzerland Yes

United Kingdom Yes, conditional Most deductions in the United Kingdom must be incurred wholly, exclusively and necessarily in the performance of an employee’s duties, a condition that precludes the deduction of many employment related expenses.

United States Yes Employees can deduct work-related expenses subject to limitation (expenses generally only deductible to the extent they exceed 2 per cent of adjusted gross income). The United States allows taxpayers the option of claiming a standard deduction in lieu of itemising deductions.

Many of the OECD-10 that levy social security contributions also allow this expense as a deduction. The United States also allows individuals to claim state and local taxes as a deduction from their federal income tax.


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Tax unit

The tax unit can be based on an individual or on a person’s spouse and dependants.

While the majority of the OECD-10 countries have the individual as the tax unit, joint taxation is possible in Canada, Spain, Ireland, Switzerland and the United States. According to the OECD (OECD 2006) the only countries in the OECD-10 where couples with average earnings can benefit from joint taxation are Ireland, Switzerland and the United States.

Australia’s personal income tax system is based on the individual. There are a few areas of personal income tax that are based on the combined family income. For example, the Australian Government levies a Medicare levy surcharge for individuals who do not have private health insurance and whose family income exceeds the relevant threshold. Family income, for Medicare levy surcharge purposes only, includes the income of both the taxpayer and their spouse.

Appendix 4.5 provides more detail on the tax base and the tax unit for each of the OECD-10.


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REFERENCES

Australian Treasury 2003, ‘Treasury submission to the Senate Economics References Committee Inquiry into the Structure and Distributive Effects of the Australian Taxation System’, Economic Round, Spring, Treasury, Canberra, pp 27-56.

IBFD 2005, Asia Pacific handbook.

IBFD 2005, European tax handbook.

OECD 2001, Tax and the Economy a comparative assessment of OECD countries, OECD, Paris.

OECD 2002, Revenue Statistics 1965-2001, OECD, Paris.

OECD 2004, Tax Policy Studies, ‘Tax and the economy a comparative assessment of the OECD countries, OECD, Paris.

OECD 2005, Revenue Statistics 1965-2004, OECD, Paris.

OECD 2005, OECD social, employment and migration working papers, Can parents afford to work? Childcare costs, tax-benefit policies and work incentives, OECD, Paris.

OECD 2006, Fundamental reform of Personal Income Tax (forthcoming) OECD, Paris.

OECD 2006, Tax Database.

OECD 2006, Taxing wages 2005, OECD, Paris.

Owens, J 2006, ‘An international perspective on Japanese Tax Reform’, presented at OECD business day 14 March 2006, OECD.

Piper, S and Murphy, C 2005, ‘Flat personal income taxes: systems in practice in Eastern Europe economies’, Economic Roundup, Spring 2005, Treasury, Canberra, pp 37-52.

Whiteford, P 2005, ‘The Welfare Expenditure Debate: “Economic myths of the left and the right” revisited’, OECD.


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APPENDIX 4.1: TAX WEDGE ANALYSIS

TAX WEDGE ANALYSIS

The tax wedge is the sum of personal income tax (at all levels of government), employee and employer social security contributions and payroll taxes minus any cash benefits from government welfare programmes. The tax wedge is usually expressed as a percentage of the total labour costs. This measure is illustrated diagrammatically in Appendix chart 4.1.1.

Appendix chart 4.1.1: Illustration of the tax wedge

Labour costs

Net wages

Income tax

Employee SSC

Employer SSCPayroll tax

Net wages

Cash benefits

Disposable income

Tax wedge

The tax wedge is the most useful measure of the tax burden to consider because it takes into account the interchangeability of cash benefits and tax relief. The tax wedge for workers in Australia is consistently ranked amongst the lowest eight in the OECD-30 (Appendix table 4.1.3) for each of the eight family types considered later in this Appendix. Australia’s tax wedges are among the lowest six of the OECD-10 for all the family types (Appendix table 4.1.4).


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TAX WEDGE COMPOSITION

Appendix table 4.1.1 outlines the composition of the tax wedge for a single individual earning the average wage with no dependants. In general, the tax wedge consists of income tax, employee and employer social security contributions, payroll tax, and cash benefits. For simplicity, only the components of an average worker's tax wedge are examined. This illustrates that the composition of the tax wedge and the proportions of the components vary significantly amongst the OECD-30.

Appendix table 4.1.1: Tax wedge for a single worker earning the average wage with no dependants, 2005

Employee social Employer social Labour costs insecurity security US dollars using

Total tax Income contributions contributions purchashing pwerCountry wedge tax plus payroll tax paritiesKorea 17.3 2.5 6.5 8.2 41,086Mexico 18.2 5.6 1.4 11.2 12,031New Zealand 20.5 20.5 0.0 0.0 27,274Ireland 25.7 11.4 4.7 9.7 34,395Japan 27.7 5.9 10.5 11.3 43,122Australia 28.3 22.7 0.0 5.7 39,062Iceland 29.0 23.4 0.2 5.4 33,953United States 29.1 14.6 7.3 7.3 34,144Switzerland 29.5 9.6 10.0 10.0 45,191Canada 31.6 14.8 6.2 10.5 34,965United Kingdom 33.5 15.7 8.2 9.6 50,982Luxembourg 35.3 11.1 12.3 11.9 46,531Portugal 36.2 8.1 8.9 19.2 24,933Norway 37.3 18.8 6.9 11.6 43,554Slovak Republic 38.3 6.9 10.6 20.8 15,748Netherlands 38.6 9.5 19.7 9.5 45,910Greece 38.8 4.3 12.5 21.9 33,050Spain 39.0 10.7 4.9 23.4 34,545Denmark 41.4 30.2 10.6 0.5 38,664Turkey 42.7 12.7 12.3 17.7 22,610Poland 43.6 5.3 21.3 17.0 19,548Czech Republic 43.8 8.6 9.3 25.9 20,559Finland 44.6 20.1 5.1 19.4 43,443Italy 45.4 13.6 6.9 24.9 36,011Austria 47.4 10.9 14.0 22.6 47,692Sweden 47.9 18.1 5.3 24.5 43,916France 50.1 10.8 9.6 29.7 47,824Hungary 50.5 14.3 10.0 26.3 18,559Germany 51.8 17.3 17.3 17.3 53,278Belgium 55.4 21.4 10.7 23.3 53,581Unweighted average: OECD 37.3 13.3 8.8 15.2 36,205 Source: OECD Taxing Wages, 2005.

International comparison of Australia's taxes

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ANALYSIS OF THE TAX WEDGE FOR DIFFERENT FAMILY TYPES

The OECD collects data on tax wedges for eight different hypothetical family types. These family types provide a broad representation of a large number of common circumstances. These eight cameos are summarised in Appendix table 4.1.2.

Appendix table 4.1.2: Characteristics of the different family types Family Marital Number of Number oftype status children earners First wage Second wage1 Single 0 1 67% 0%2 Single 0 1 100% 0%3 Single 0 1 167% 0%4 Single 2 1 67% 0%5 Married 2 1 100% 0%6 Married 2 2 100% 33%7 Married 2 2 100% 67%8 Married 0 2 100% 33% Source: OECD Taxing Wages, 2005.

Australia’s position for the eight family types

Appendix chart 4.1.2 and Appendix chart 4.1.3 show the tax wedge of the OECD-30 for the eight family types, with Australia's position highlighted. Australia is always ranked within the lowest eight amongst the OECD-30 for all the family types. Appendix chart 4.1.4 and Appendix chart 4.1.5 show the marginal tax wedge of the OECD-30 for the eight family types. The OECD averages and Australia’s rankings for the tax wedge and marginal tax wedge for the eight family types are summarised in Appendix table 4.1.3 to Appendix table 4.1.6.

The tax wedge for an average single worker in Australia is 28.3 per cent, which is the sixth lowest in the OECD-30 and is the fourth lowest in the OECD-10. New Zealand, Ireland and Japan have smaller tax wedges. Australia's marginal tax wedge for an average worker is 35.4 per cent, placing it sixth lowest in the OECD-30 and fourth lowest in the OECD-10.

Australia's tax wedge for a single worker earning 67 per cent of the average wage is 24.8 per cent, which is the sixth lowest in the OECD-30 and third lowest in the OECD-10. New Zealand and Ireland have smaller tax wedges. Australia's marginal tax wedge for this worker is 35.4 per cent, which is tenth lowest in the OECD-30 and fourth largest in the OECD-10. Among the OECD-10, the United Kingdom, Spain and the Netherlands have larger marginal tax wedges.

In Australia, the tax wedge for a single worker earning 167 per cent of the average wage is 35.6 per cent placing it eighth lowest in the OECD-30 and sixth lowest in the OECD-10. Australia’s marginal tax wedge for this worker is 51.4 per cent, which is sixteenth lowest in the OECD-30 and second largest in the OECD-10 after the Netherlands. Australia’s marginal tax wedge is slightly above the OECD-30 average.

Australia's tax wedge for a single parent earning 67 per cent of the average wage with two children is -5.5 per cent which is second lowest in the OECD-30 and the OECD-10 after Ireland. This means that the benefits received as cash transfers are larger than the total tax burden. New Zealand, the United States and Canada also provide a net benefit for this worker. The marginal tax wedge in Australia for this single parent is 68.3 per cent of labour


Page 87

costs, which is the third largest in the OECD-30 after Belgium and the United Kingdom and is the second largest in the OECD-10.

The tax wedge in Australia for a single-income married couple earning the average wage with two children is 16.0 per cent of labour costs, which is the sixth lowest in the OECD-30 and fourth lowest amongst the OECD-10. Ireland has the lowest tax wedge for this family type. Australia's marginal tax wedge for this family type is 54.2 per cent, which is the tenth largest in the OECD-30 and the third largest in the OECD-10 after Canada and New Zealand.

In Australia, the tax wedge for a dual-income married couple with one partner earning 100 per cent and the other 33 per cent of the average wage with two children is 20.5 per cent, which is eighth lowest in the OECD-30 and fourth lowest amongst the OECD-10 countries. The United States, New Zealand and Ireland have lower tax wedges. Australia’s marginal tax wedge for this family type is 35.4 per cent which places Australia eighth lowest in the OECD-30 and sixth lowest in the OECD-10.

For a dual-income married couple with one partner earning 100 per cent and the other 67 per cent of the average wage with two children in Australia the tax wedge is 23.1 per cent, which is seventh lowest in the OECD-30 and fourth lowest in the OECD-10. Australia’s marginal tax wedge for this family type is 35.4 per cent which places Australia seventh lowest in the OECD-30 and fifth lowest in the OECD-10.

In Australia, a dual-income married couple with one partner earning 100 per cent and the other 33 per cent of the average wage with no children has a tax wedge of 25.2 per cent, which is sixth lowest in the OECD-30 and third lowest in the OECD-10 after New Zealand and Ireland. Australia’s marginal tax wedge for this family type is 35.4 per cent which places Australia eighth lowest in the OECD-30 and sixth lowest in the OECD-10.

In summary, Australia’s tax wedge is substantially closer to the OECD-10 average than the OECD-30 average. Of particular note is the tax wedge for a single parent earning 67 per cent of the average wage with two dependent children which is - 5.5 per cent. Spain, Netherlands, Switzerland and the United Kingdom generally have a higher tax wedge than Australia in all eight family scenarios. New Zealand and Ireland generally have a lower tax wedge than Australia for most family types.

Australia’s marginal tax wedge is above both the OECD-30 and OECD-10 averages for a single worker earning 167 per cent of the average wage with no children, a single parent earning 67 per cent of the average wage with two children and for a single income married couple earning the average wage with two children. For families with dependants, any high marginal tax wedges are a result of Australia’s relatively highly targeted social security system.


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of o

ne.

Sour

ce: O

ECD

Tax

ing

Wag

es, 2

005.

A

ppen

dix

tabl

e 4.

1.4:

Aus

tral

ia’s

tax

wed

ge —

com

paris

on w

ith O

ECD

-10

Sing

leSi

ngle

Sing

leSi

ngle

Mar

ried

Mar

ried

Mar

ried

Mar

ried

no c

hild

ren

no c

hild

ren

no c

hild

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

n67

%10

0%16

7%67

%10

0%-0

%10

0%-3

3%10

0%-6

7%10

0%-3

3%A

ustra

lia's

tax

wed

ge24

.828

.335

.6-5

.516

.020

.523

.125

.2O

EC

D-1

0 av

erag

e ta

x w

edge

27.7

30.4

35.0

7.5

20.5

23.5

26.1

27.6

Aus

tralia

's ra

nk in

the

OE

CD

-10

34

62

44

43

N

ote:

The

cou

ntry

with

the

smal

lest

tax

wed

ge h

as a

rank

of o

ne.

Sour

ce: O

ECD

Tax

ing

Wag

es, 2

005.

A

ppen

dix

tabl

e 4.

1.5:

Aus

tral

ia’s

mar

gina

l tax

wed

ge —

com

paris

on w

ith O

ECD

-30

Sing

leSi

ngle

Sing

leSi

ngle

Mar

ried

Mar

ried

Mar

ried

Mar

ried

no c

hild

ren

no c

hild

ren

no c

hild

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

n2

child

ren

no c

hild

ren

67%

100%

167%

67%

100%

-0%

100%

-33%

100%

-67%

100%

-33%

Aus

tralia

's m

argi

nal t

ax w

edge

35.4

35.4

51.4

68.3

54.2

35.4

35.4

35.4

OE

CD

-30

aver

age

mar

gina

l tax

wed

ge43

.046

.549

.246

.746

.844

.545

.544

.6A

ustra

lia's

rank

in th

e O

EC

D-3

010

616

2821

87

8

Not

e: T

he c

ount

ry w

ith th

e sm

alle

st m

argi

nal t

ax w

edge

has

a ra

nk o

f one

. So

urce

: OEC

D T

axin

g W

ages

, 200

5.

App

endi

x ta

ble

4.1.

6: A

ustr

alia

’s m

argi

nal t

ax w

edge

— c

ompa

rison

with

OEC

D-1

0 Si

ngle

Sing

leSi

ngle

Sing

leM

arrie

dM

arrie

dM

arrie

dM

arrie

dno

chi

ldre

nno

chi

ldre

nno

chi

ldre

n2

child

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

nno

chi

ldre

n67

%10

0%16

7%67

%10

0%-0

%10

0%-3

3%10

0%-6

7%10

0%-3

3%A

ustra

lia's

mar

gina

l tax

wed

ge35

.435

.451

.468

.354

.235

.435

.435

.4O

EC

D-1

0 av

erag

e m

argi

nal t

ax w

edge

36.8

40.1

43.0

48.2

45.4

38.0

38.4

38.0

Aus

tralia

's ra

nk in

the

OE

CD

-10

74

99

86

56

N

ote:

The

cou

ntry

with

the

smal

lest

mar

gina

l tax

wed

ge h

as a

rank

of o

ne.

Sour

ce: O

ECD

Tax

ing

Wag

es, 2

005.


Page 89

Appendix chart 4.1.2: Tax wedge (as a percentage of labour costs) for singles Tax wedge for a single worker earning 67 percent of the average wage with no children (left)

and for an average worker with no children (right), OECD-30

0 10 20 30 40 50 60

MexicoKorea

NZIrelandIceland

JapanUS

SwitzerlandCanada

Lux'bourgUK

PortugalNorwayGreece

Slovak RepSpain

DenmarkFinland

Neth'landsFrance

ItalyTurkey

Czech RepPolandAustria

HungarySweden

GermanyBelgium

Per cent

OECD-30 average

Australia

0 10 20 30 40 50 60

KoreaMexico

NZIrelandJapan

IcelandUS

SwitzerlandCanada

UKLux'bourg

PortugalNorway

Slovak RepNeth'lands

GreeceSpain

DenmarkTurkeyPoland

Czech RepFinland

ItalyAustria

SwedenFrance

HungaryGermanyBelgium

Per cent

OECD-30 average

Australia

Tax wedge for a single average worker earning 167 per cent of the average wage (left) and for a single parent earning 67 per cent of the average wage with two children (right), OECD-30

0 10 20 30 40 50 60 70

KoreaMexico

NZJapan

CanadaUS

Switzerland

IrelandIceland

UKSlovak Rep

PortugalNeth'lands

SpainLux'bourg

NorwayTurkeyPolandGreece

Czech RepDenmark

ItalyFinlandAustriaFrance

GermanySwedenHungaryBelgium

Per cent

OECD-30 averageAustralia

-20 -10 0 10 20 30 40 50

Ireland

NZUS

CanadaIceland

Lux'bourgUK

SwitzerlandDenmark

MexicoKorea

Czech RepNorway

Neth'landsSlovak Rep

PortugalJapan

AustriaHungary

ItalyFinland

SpainFrance

GermanyGreece

BelgiumSwedenTurkeyPoland

Per cent

OECD-30 average

Australia



Page 90

Appendix chart 4.1.3: Tax wedge (as a percentage of labour costs) for married couplesTax wedge for a single income married couple earning the average wage with two children (left)

and for a dual income married couple earning 100 and 33 per cent of the average wage with two children (right), OECD-30

0 10 20 30 40 50

IrelandIceland

USLux'bourg

NZ

KoreaMexico

SwitzerlandCanada

Slovak RepJapan

PortugalCzech Rep

UKNeth'lands

DenmarkNorway

SpainItaly

AustriaGermany

FinlandGreece

HungaryBelgiumFrancePoland

SwedenTurkey

Per cent

OECD-30 average

Australia

0 10 20 30 40 50

IrelandMexicoKorea

Lux'bourgNZUS

Iceland

SwitzerlandUK

CanadaJapan

PortugalSlovak Rep

NorwayNeth'lands

DenmarkCzech Rep

SpainAustriaFinlandGreece

ItalyHungary

FranceBelgium

GermanyTurkey

SwedenPoland

Per cent


Tax wedge for a dual income married couple earning 100 and 67 per cent of the average wage with two children (left) and for a dual income married couple earning 100 and 33 per cent

with no children (right), OECD-30

0 10 20 30 40 50

KoreaMexicoIreland

NZLux'bourg

US

IcelandJapan

CanadaUK

Portugal

NorwayNeth'lands

DenmarkSpain

GreeceFinland

Czech RepAustria

ItalyHungary

TurkeyFrancePoland

SwedenGermanyBelgium

Per cent

OECD-30 average

Australia

Slovak Rep

Switzerland

0 10 20 30 40 50

MexicoKorea

IrelandNZ

Iceland

USJapan

SwitzerlandLux'bourg

CanadaUK

PortugalNorway

Slovak RepSpain

Neth'landsGreece

DenmarkFinland

ItalyTurkeyPoland

Czech RepAustriaFrance

SwedenGermanyBelgiumHungary

Per cent

OECD-30 average

Australia



Page 91

Appendix chart 4.1.4: Marginal Tax wedge for singles Marginal tax wedge for a single worker earning 67 per cent of the average wage with no children (left)

and for an average worker with no children (right), OECD-30

0 20 40 60 80

KoreaNZ

MexicoJapan

Ireland

USGreeceCanada

PortugalIceland

UKLux'bourgDenmark

NorwaySlovak Rep

TurkeyCzech Rep

PolandSpain

FinlandSwedenHungary

ItalyAustria

Neth'landsGermany

FranceBelgium

Per cent


Switzerland

0 20 40 60 80 100

MexicoKoreaJapan

NZUS

SwitzerlandIceland

UKCanadaNorway

Slovak RepTurkeySpain

PolandPortugal

Czech RepSweden

DenmarkNeth'landsLux'bourg

ItalyIrelandGreeceFinlandFranceAustria

GermanyBelgiumHungary

Per cent

OECD-30 average

Australia

Marginal tax wedge for a single average worker earning 167 per cent of the average wage (left) and for a single parent earning 67 per cent of the average wage with two children (right), OECD-30

0 20 40 60 80

KoreaJapan

MexicoCanada

SpainNZ

AustriaSlovak RepSwitzerland

USIceland

GermanyUK

TurkeyIreland

Czech Rep

Neth'landsPolandNorway

Lux'bourgPortugal

ItalyFinlandFranceGreece

DenmarkHungarySwedenBelgium

Per cent

OECD-30 average

Australia

0 20 40 60 80

KoreaMexico

Lux'bourgUS

Japan

GreecePortugal

NZSpain

DenmarkNorway

Slovak RepTurkeyPolandIcelandFinland

SwedenHungary

Neth'landsItaly

CanadaAustria

GermanyCzech Rep

FranceIreland

BelgiumUK

Per cent

OECD-30 average

Australia

Switzerland



Page 92

Appendix chart 4.1.5: Marginal Tax wedge for married couples Marginal tax wedge for a single income married couple earning the average wage with two children (left) and for a dual income married couple earning 100 and 33 per cent

of the average wage with two children (right), OECD-30

0 20 40 60 80 100

KoreaMexico

Lux'bourgJapan

SwitzerlandIreland

PortugalUK

NorwayDenmark

Slovak RepTurkeySpain

PolandIceland

SwedenUS

Neth'landsFranceGreece

ItalyFinland

GermanyCanada

Czech RepAustria

NZBelgiumHungary

Per cent

OECD-30 average

Australia

0 20 40 60 80 100

MexicoKoreaJapan

NZIreland

US

Lux'bourgPortugal

UKNorway

Denmark

CanadaTurkey

Czech RepSpain

PolandIcelandFrance

SwedenNeth'lands

ItalyGreeceFinlandAustria


Per cent


Slovak Rep

Switzerland

Marginal tax wedge for a dual income married couple earning 100 and 67 per cent of the average wage with two children (left) and for a dual income married couple earning

100 and 33 per cent with no children (right), OECD-30

0 20 40 60 80 100

MexicoKoreaJapan

NZIreland

US

UKNorway

Denmark

Canada

TurkeySpain

PolandIceland

Portugal

Sweden

FranceItaly

GreeceFinlandAustria

BelgiumHungary

Per cent

OECD-30 average

Australia

Germany

Neth'lands

Czech Rep

Lux'bourg

Slovak Rep

Switzerland

0 20 40 60 80 100

MexicoKoreaJapan

NZIreland

USSwitzerland

Lux'bourgPortugalIceland

UKCanadaNorway

DenmarkSlovak Rep

TurkeySpain

PolandCzech Rep

SwedenNeth'lands

FranceItaly

GreeceFinlandAustria


Per cent




Page 93

APPENDIX 4.2: NET PERSONAL AVERAGE TAX RATE ANALYSIS

The net personal average tax rate is a measure of an employee's total wage-based tax burden. It is the sum of personal income tax plus employee social security contributions, less cash benefits as a percentage of gross wages. The net personal average tax rate is represented diagrammatically in Appendix chart 4.2.1.

Appendix chart 4.2.1: Net personal average tax rate

Gross wages

Net wages Net wages

Income tax

Employee SSC

Cash benefits

Disposable income

Net personal tax

The net personal average tax rate can be described as a measure of a family household's wage-based disposable income, and is important since it is a measure of the employee’s incentive to increase the number of hours they work or to seek promotion.

The following analysis details Australia’s position amongst the OECD-30 countries for each of the eight family types using the net personal average tax rate and net personal marginal tax rate. In general, the net personal average tax rate in Australia is consistently ranked between eleventh and fifteenth lowest in the OECD-30 for seven of the eight different family types. (see Appendix table 4.2.1).


Page 94

AUSTRALIA’S POSITION FOR THE EIGHT FAMILY TYPES

Appendix chart 4.2.2 and Appendix chart 4.2.3 show the net personal average tax rate of the OECD-30 for the eight family types, with Australia’s position highlighted. Appendix chart 4.2.4 and Appendix chart 4.2.5 show the net personal marginal tax rate of the OECD-30 for the eight family types. The OECD averages and Australia’s rankings for the net personal average tax rate and net personal marginal tax rate are summarised in Appendix table 4.2.1 to Appendix table 4.2.4.

Australia’s net personal average tax rate for an average worker is 24.0 per cent, which places it thirteenth lowest in the OECD-30 and third largest in the OECD-10 after the United Kingdom and the Netherlands. The net personal marginal tax rate in Australia for an average worker with no children is 31.5 per cent, placing it ninth lowest in the OECD-30 and fifth lowest in the OECD-10.

In Australia, the net personal average tax rate for a single worker earning 67 per cent of the average wage with no children is 20.3 per cent, placing it fourteenth lowest in the OECD-30 and fourth highest in the OECD-10. The United States and the United Kingdom both have higher net personal average tax rates, while Canada and New Zealand have lower net personal average tax rates. The net personal marginal tax rate for a worker earning 67 per cent of the average wage in Australia is 31.5 per cent and is the thirteenth lowest in the OECD-30 and fourth highest in the OECD-10. This is within two percentage points of both OECD averages.

In Australia, a single worker earning 167 per cent of the average wage with no children has a net personal average tax rate of 31.7 per cent, placing it fifteenth lowest in the OECD-30 and the second largest in the OECD-10. This value is slightly below the OECD-30 average and above the OECD-10 average. The net personal marginal tax rate for this worker in Australia is 48.5 per cent of gross wages placing it eighth highest in the OECD-30 and second highest in the OECD-10.

For a single parent earning 67 per cent of the average wage with two children in Australia, the net personal average tax rate is -11.8 per cent, which is third lowest in the OECD-30 and the OECD-10. Eight other countries in the OECD-30 provide a net overall benefit to this family type and therefore have a negative net personal average tax rate. The net personal marginal tax rate in Australia for this single parent is 66.4 per cent, which is the second highest in the OECD-30 and the OECD-10 after the United Kingdom. For these single parents, the United States and Luxembourg are the only countries which have reasonably large net benefits and relatively low net personal marginal tax rates.

For a single-income married couple earning the average wage with two children, the net personal average tax rate is 10.9 per cent in Australia, placing it eleventh lowest in the OECD-30 and fourth lowest in the OECD-10. The lowest net personal average tax rate for this family type is in Ireland. The net personal marginal tax rate in Australia for this family type is 51.5 per cent, which is the fifth highest in the OECD-30 and third highest in the OECD-10.

In Australia a dual-income married couple with one partner earning 100 per cent and the other 33 per cent of the average wage with two children has a net personal average tax rate


Page 95

of 15.7 per cent placing it twelfth lowest in the OECD-30 and fifth lowest in the OECD-10. Ireland has the lowest net personal average tax rate for these families.

In Australia, a dual-income married couple earning 100 per cent and 67 per cent of the average wage with two children has a net personal average tax rate of 18.5 per cent, which places Australia twelfth lowest in the OECD-30 and the fifth largest in the OECD-10.

For a dual-income married couple earning 100 per cent and 33 per cent of the average wage with no children, the Australian net personal average tax rate is 20.8 per cent of gross wages, which is thirteenth lowest in the OECD-30 and seventh lowest in the OECD-10.

In Australia, the net personal marginal tax rates for the last three family types discussed above all have a value of 31.5 per cent which places Australia either eleventh or thirteenth lowest in the OECD-30 and fifth highest in the OECD-10. The Netherlands and Canada have the highest net personal marginal tax rate in the OECD-10 for these family types.

In summary, Australia’s net personal average tax rate is placed between eleventh and fifteenth lowest in the OECD-30 for seven out of the eight family types. The exception is for a single worker earning 67 per cent of the average wage with two children for which Australia is third lowest in the OECD-30. Australia’s net personal marginal tax rate is above both the OECD-30 and OECD-10 averages for a single worker earning 167 per cent of the average wage with no children, a single parent earning 67 per cent of the average wage with two children and for a single income married couple earning the average wage with two children. For families with dependants, any high net personal marginal tax rates are a result of Australia’s relatively highly targeted social security system.


Page 96

App

endi

x ta

ble

4.2.

1: A

ustr

alia

’s n

et p

erso

nal a

vera

ge ta

x ra

te —

com

paris

on w

ith O

ECD

-30

Sing

leSi

ngle

Sing

leSi

ngle

Mar

ried

Mar

ried

Mar

ried

Mar

ried

no c

hild

ren

no c

hild

ren

no c

hild

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

n2

child

ren

no c

hild

ren

67%

100%

167%

67%

100%

-0%

100%

-33%

100%

-67%

100%

-33%

Aus

tralia

's n

et p

erso

nal a

vera

ge ta

x ra

te20

.324

.031

.7-1

1.8

10.9

15.7

18.5

20.8

OE

CD

-30

aver

age

net p

erso

nal a

vera

ge ta

x ra

te22

.126

.232

.15.

014

.917

.620

.422

.8A

ustra

lia's

rank

in th

e O

EC

D-3

014

1315

311

1212

13

Not

e: T

he c

ount

ry w

ith th

e sm

alle

st n

et p

erso

nal a

vera

ge ta

x ra

te h

as a

rank

of o

ne.

Sour

ce: O

ECD

Tax

ing

Wag

es, 2

005.

A

ppen

dix

tabl

e 4.

2.2:

Aus

tral

ia’s

net

per

sona

l ave

rage

tax

rate

— c

ompa

rison

with

OEC

D-1

0 Si

ngle

Sing

leSi

ngle

Sing

leM

arrie

dM

arrie

dM

arrie

dM

arrie

dno

chi

ldre

nno

chi

ldre

nno

chi

ldre

n2

child

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

nno

chi

ldre

n67

%10

0%16

7%67

%10

0%-0

%10

0%-3

3%10

0%-6

7%10

0%-3

3%A

ustra

lia's

net

per

sona

l ave

rage

tax

rate

20.3

24.0

31.7

-11.

810

.915

.718

.520

.8O

EC

D-1

0 av

erag

e ne

t per

sona

l ave

rage

tax

rate

19.6

22.9

28.4

-2.5

12.0

15.3

18.0

19.8

Aus

tralia

's ra

nk in

the

OE

CD

-10

78

93

45

67

N

ote:

The

cou

ntry

with

the

smal

lest

net

per

sona

l ave

rage

tax

rate

has

a ra

nk o

f one

. So

urce

: OEC

D T

axin

g W

ages

, 200

5.

App

endi

x ta

ble

4.2.

3: A

ustr

alia

’s n

et p

erso

nal m

argi

nal t

ax ra

te —

com

paris

on w

ith O

ECD

-30

Sing

leSi

ngle

Sing

leSi

ngle

Mar

ried

Mar

ried

Mar

ried

Mar

ried

no c

hild

ren

no c

hild

ren

no c

hild

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

n2

child

ren

no c

hild

ren

67%

100%

167%

67%

100%

-0%

100%

-33%

100%

-67%

100%

-33%

Aus

tralia

's n

et p

erso

nal m

argi

nal t

ax ra

te31

.531

.548

.566

.451

.531

.531

.531

.5O

EC

D-3

0 av

erag

e ne

t per

sona

l mar

gina

l tax

rate

32.4

37.2

42.3

36.3

37.3

34.8

36.0

35.0

Aus

tralia

's ra

nk in

the

OE

CD

-30

139

2329

2613

1113

N

ote:

The

cou

ntry

with

the

smal

lest

net

per

sona

l mar

gina

l tax

rate

has

a ra

nk o

f one

. So

urce

: OEC

D T

axin

g W

ages

, 200

5.

App

endi

x ta

ble

4.2.

4: A

ustr

alia

’s n

et p

erso

nal m

argi

nal t

ax ra

te —

com

paris

on w

ith O

ECD

-10

Sing

leSi

ngle

Sing

leSi

ngle

Mar

ried

Mar

ried

Mar

ried

Mar

ried

no c

hild

ren

no c

hild

ren

no c

hild

ren

2 ch

ildre

n2

child

ren

2 ch

ildre

n2

child

ren

no c

hild

ren

67%

100%

167%

67%

100%

-0%

100%

-33%

100%

-67%

100%

-33%

Aus

tralia

's n

et p

erso

nal m

argi

nal t

ax ra

te31

.531

.548

.566

.451

.531

.531

.531

.5O

EC

D-1

0 av

erag

e ne

t per

sona

l mar

gina

l tax

rate

29.6

33.6

39.8

41.9

39.0

31.2

31.7

31.3

Aus

tralia

's ra

nk in

the

OE

CD

-10

75

99

86

66

N

ote:

The

cou

ntry

with

the

smal

lest

net

per

sona

l mar

gina

l tax

rate

has

a ra

nk o

f one

. So

urce

: OEC

D T

axin

g W

ages

, 200

5.


Page 97

Appendix chart 4.2.2: Net personal average tax rate (as a percentage of gross wage earnings) for singles

Net personal average tax rate for a single worker earning 67 percent of the average wage with no children (left) and for an average worker with no children (right), OECD-30

0 10 20 30 40 50

MexicoKorea

IrelandPortugalGreece

SpainJapan

Canada

NZIceland

Lux'bourg

US

HungaryItalyUK

FinlandNorwayAustriaFrance

SwedenTurkeyPoland

Neth'landsBelgium

GermanyDenmark

Per cent

OECD-30 average

Australia

Czech Rep

Switzerland

Slovak Rep

0 10 20 30 40 50

MexicoKorea

IrelandJapanSpain

NZPortugalGreece

SwitzerlandSlovak Rep

CanadaUS

Czech RepIceland

UKLux'bourg

ItalyFranceNorwayTurkey

SwedenFinlandPolandAustria

Neth'landsHungary

DenmarkGermanyBelgium

OECD-30 average

Per cent

Australia

Net personal average tax rate for a single worker earning 167 per cent of the average wage (left) and for a single parent earning 67 per cent of the average wage with two children (right), OECD-30

0 10 20 30 40 50 60

KoreaMexicoJapan

Slovak RepSpain

NZSwitzerland

CanadaCzech Rep

PortugalUS

IrelandUK

Greece

TurkeyFranceIceland

ItalyPoland

Lux'bourgNorwayAustria

Neth'landsFinland

SwedenHungary

GermanyBelgium

Denmark

Per cent

OECD-30 average

Australia

-30 -20 -10 0 10 20 30 40

IrelandCanada

Czech RepUS

Lux'bourgNZ

HungaryIceland

UKItaly

Slovak RepMexicoAustria

SwitzerlandPortugal

KoreaNorway

SpainNeth'lands

FinlandDenmark

JapanFranceGreece

BelgiumSweden

GermanyTurkeyPoland

Per cent

OECD-30 average

Australia



Page 98

Appendix chart 4.2.3: Net personal average tax rate (as a percentage of gross wage earnings) for married couples

Net personal average tax rate for a single income married couple earning the average wage with two children (left) and for a dual income married couple earning 100 and 33 per cent of the average wage with

two children (right), OECD-30

-10 0 10 20 30 40

IrelandLux'bourg

Czech Rep

USIcelandMexicoKorea

Portugal

CanadaSpain

ItalyNZ

JapanAustriaFrance

HungaryUK

NorwayNeth'lands

GreeceBelgium

GermanyFinland

SwedenDenmark

PolandTurkey

Per cent

OECD-30 average

AustraliaSwitzerland

Slovak Rep

0 10 20 30 40

IrelandMexico

Lux'bourgKorea

Slovak RepPortugal

SwitzerlandCzech Rep

USIceland

Spain

JapanCanadaHungary

ItalyUK

AustriaFrance

NZGreeceFinlandNorwaySweden

Neth'landsBelgium

GermanyTurkeyPoland

Denmark

Per cent

OECD-30 average

Australia

Net personal average tax rate for a dual income married couple earning 100 and 67 per cent of the average wage with two children (left) and for a dual income married couple earning 100 and 33 per cent


0 10 20 30 40

MexicoIrelandKorea

Lux'bourgSlovak Rep

PortugalSwitzerland

USJapanSpain

Czech Rep

CanadaHungary

NZGreeceIceland

UKItaly

AustriaFranceNorwayFinland

SwedenNeth'lands

TurkeyPoland

BelgiumGermanyDenmark

Per cent

OECD-30 average

Australia

0 10 20 30 40 50

MexicoKorea

IrelandPortugal

SpainJapan

Lux'bourg

Iceland

NZCanada

USGreece

ItalyUK

FranceNorwayFinland

HungaryAustria

SwedenTurkeyPoland

BelgiumGermanyDenmark

Per cent

OECD-30 average

Australia

Neth'lands

Czech Rep

Switzerland

Slovak Rep



Page 99

Appendix chart 4.2.4: Net personal marginal tax rate for singles Net personal marginal tax rate for a single worker earning 67 percent of the average wage with no

children (left) and for an average worker with no children (right), OECD-30

0 20 40 60 80

KoreaMexicoGreeceJapan

NZPortugal

Czech RepIreland

Canada

US

FranceTurkey

UKLux'bourg

SpainPoland

SwedenNorwayIceland

HungaryItaly

FinlandDenmark

AustriaNeth'lands

GermanyBelgium

Per cent

OECD-30 average

Australia

Switzerland

Slovak Rep

0 20 40 60 80

MexicoKoreaJapanSpain

US

Slovak RepCzech Rep

SwedenTurkey

NZUK

PortugalPoland

CanadaNorwayIcelandFrance

ItalyGreeceFinlandAustria

Neth'landsLux'bourg

IrelandDenmarkBelgium

GermanyHungary

Per cent

OECD-30 average

Australia

Switzerland

Net personal marginal tax rate for a single average worker earning 167 per cent of the average wage (left) and for a single parent earning 67 per cent of the average wage with two children (right), OECD-30

0 20 40 60 80

KoreaMexicoJapan

Slovak RepCanada

Czech RepTurkeySpain

SwitzerlandAustria

USNZ

IcelandUK

FrancePoland

GermanyIreland

PortugalItaly

NorwayLux'bourg

GreeceFinland

HungaryNeth'lands

SwedenBelgium

Denmark

Per cent

OECD-30 average

Australia

0 20 40 60 80

KoreaLux'bourg

MexicoGreeceJapan

USSwitzerland

FranceSpain

PortugalSlovak Rep

TurkeyPoland

SwedenNorway

HungaryItaly

FinlandNZ

DenmarkIcelandAustria

Neth'landsCzech Rep

GermanyCanadaBelgium

Ireland

UK

Per cent

OECD-30 average

Australia



Page 100

Appendix chart 4.2.5: Net personal marginal tax rate for married couples Net personal marginal tax rate for a single income married couple earning the average wage with two children (left) and for a dual income married couple earning 100 and 33 per cent of the average wage

with two children (right), OECD-30

0 20 40 60 80

KoreaLux'bourg

MexicoJapan

Portugal

IrelandSpain

Slovak RepFrance

SwedenTurkey

UKPolandNorway

ItalyGreece

Czech RepIceland

DenmarkFinlandAustria

USNeth'lands

Germany

CanadaBelgium

NZHungary

Per cent

OECD-30 average

Australia

Switzerland

0 20 40 60 80

MexicoKoreaJapan

PortugalCzech Rep

IrelandFranceSpain

USSlovak Rep

Lux'bourg

SwedenTurkey

NZUK

PolandNorway

ItalyCanadaGreeceIceland


Neth'landsGermanyBelgiumHungary

Per cent

OECD-30 average

Switzerland

Australia

Net personal marginal tax rate for a dual income married couple earning 100 and 67 per cent of the average wage with two children (left) and for a dual income married couple earning 100 and 33 per cent


0 20 40 60 80

MexicoKoreaJapan

IrelandSpain

USSlovak RepCzech RepSwitzerland

France

SwedenTurkey

UKNZ

PortugalPolandNorway

ItalyLux'bourg

CanadaGreeceIceland



Per cent


0 20 40 60 80

MexicoKoreaJapan

PortugalIreland

SpainUS

Slovak RepCzech Rep

Lux'bourgFrance

SwedenTurkey

NZUK

PolandCanadaNorwayIceland

ItalyGreece



Per cent

OECD-30 average

Australia

Switzerland



Page 101

APPENDIX 4.3: TAX WEDGE FAMILY COMPARISONS

This appendix analyses the family type comparison of the tax wedge and the marginal tax wedge for each country in the OECD-30. Comparing different family types provides insights into the effects on tax and benefits of family composition and of additional earnings from a second earner. The family type comparisons examined in this appendix are:

(a) comparing the average worker (AW) with no children to a single-income married couple earning the average wage with two children. This demonstrates the difference between the tax treatment of singles and families;

(b) comparing a single worker earning 67 per cent of the average wage, to the same worker with two dependent children. This shows how the tax system treats the inclusion of dependants for single workers;

(c) comparing a dual-income married couple with no children, earning an average wage and 33 per cent of an average wage, to the same couple with two dependent children. This shows how the tax system treats the inclusion of dependants for married couples; and

(d) comparing a single-income married couple earning the average wage with two children, to a dual-income married couple with two children, with the second income being 33 per cent of the average wage. This shows the effect of a partner starting work or re-entering the labour force.

In general:

• Families receive assistance from cash benefits or the tax system in most OECD-30 countries compared to singles. Australia’s tax wedge reductions are the ninth largest in the OECD-30.

• Sole parents receive significant cash benefits across the OECD-30. Australia’s tax wedge reductions are the second largest in the OECD-30.

• Most OECD-30 countries offer assistance to families with dependant children, compared to families without children. Australia’s tax wedge reduction is similar to the OECD-30 average.

• Approximately half the OECD-30 countries have an increased tax wedge for families with a second earner compared to a single-income family. Australia’s tax wedge also increases for dual-earner families with higher incomes.


Page 102

Appendix chart 4.3.1: Tax wedge comparison of a single average worker with no children to a single-income married couple earning the average wage with two

children OECD-30

0

10

20

30

40

50

60

Kor

eaM

exic

oN

ZIre

land

Japa

n

Icel

and

US

Sw

itzer

land

Can

ada

UK

Lux'

bour

gP

ortu

gal

Nor

way

Slo

vak

Rep

Net

h'la

nds

Gre

ece

Spa

inD

enm

ark

Turk

eyP

olan

dC

zech

Rep

Finl

and

Italy

Aus

tria

Sw

eden

Fran

ceH

unga

ryG

erm

any

Bel

gium

0

10

20

30

40

50

60

Single AW with no children Married one earner at AW wage with two children

Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.3.1 shows the tax wedge for a single worker earning the average wage compared to a single-income married couple earning the average wage with two children. In Australia, the tax wedge for a single-income married couple earning the average wage with two children is 12.3 percentage points lower than that of the average worker. Most OECD-30 countries reduce the tax wedge of married couples with dependent children, compared to the average single worker either through cash benefits or tax relief. Australia’s tax wedge reduction of 12.3 percentage points is the ninth largest in the OECD-30.

Appendix chart 4.3.2: Marginal tax wedge comparison of a single average worker with no children to a single-income married couple earning the average wage with two

children OECD-30

0

10

20

30

40

50

60

70

80

Mex

ico

Kor

eaJa

pan

NZ

US

Sw

itzer

land

Icel

and

UK

Can

ada

Nor

way

Slo

vak

Rep

Turk

eyS

pain

Pol

and

Por

tuga

lC

zech

Rep

Sw

eden

Den

mar

kN

eth'

land

sLu

x'bo

urg

Italy

Irela

ndG

reec

eFi

nlan

dFr

ance

Aus

tria

Ger

man

yB

elgi

umH

unga

ry

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia



Page 103

Appendix chart 4.3.2 shows the marginal tax wedge for a single worker earning the average wage compared to a single-income married couple earning the average wage with two children. In Australia, the marginal tax wedge for this married couple is 18.9 percentage points larger than that of an average worker. This is the second highest difference in the OECD-30 after New Zealand, which has a difference of 30 percentage points. Canada and the United States have increases of 14 percentage points or more for the family with two children compared to the average worker.

Appendix chart 4.3.3: Tax wedge comparison of a single worker earning 67 per cent of the average wage with no children to a single parent earning 67 per cent of the

average wage with two children OECD-30

-20

-10

0

10

20

30

40

50

60

Mex

ico

Kor

ea NZ

Irela

ndIc

elan

d

Japa

nU

SS

witz

erla

ndC

anad

aLu

x'bo

urg

UK

Por

tuga

lN

orw

ayG

reec

eS

lova

k R

epS

pain

Den

mar

kFi

nlan

dN

eth'

land

sFr

ance

Italy

Turk

eyC

zech

Rep

Pol

and

Aus

tria

Hun

gary

Sw

eden

Ger

man

yB

elgi

um

-20

-10

0

10

20

30

40

50

60

Single 67% AW wage with no children Single 67% AW wage with two children

Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.3.3 shows the tax wedge for a single worker earning 67 per cent of the average wage with no children, compared to a single worker earning the same amount with two children. In Australia, the tax wedge for a single parent earning 67 per cent of the average wage with two children is 30.3 percentage points lower than the corresponding single worker with no children. This is the second largest difference in the OECD-30 after Ireland. The United States and Canada also have differences larger than 25 percentage points.


Page 104

Appendix chart 4.3.4: Marginal tax wedge comparison of a single worker earning 67 per cent of the average wage with no children to a single parent earning 67 per cent

of the average wage with two children OECD-30

0

10

20

30

40

50

60

70

80

Kor

ea NZ

Mex

ico

Japa

nIre

land

Sw

itzer

land US

Gre

ece

Can

ada

Por

tuga

lIc

elan

dU

KLu

x'bo

urg

Den

mar

kN

orw

ayS

lova

k R

epTu

rkey

Cze

ch R

epP

olan

dS

pain

Finl

and

Sw

eden

Hun

gary

Italy

Aus

tria

Net

h'la

nds

Ger

man

yFr

ance

Bel

gium

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.3.4 shows the marginal tax wedge for a single worker earning 67 per cent of the average wage with no children compared to the same worker with two children. In Australia, the marginal tax wedge for this worker with two children is 32.9 percentage points larger than that of the corresponding worker with no children. This is the largest difference in the OECD-30 followed by Ireland, the United Kingdom, Canada and New Zealand.

Appendix chart 4.3.5: Tax wedge comparison of a dual-income family earning 100 per cent and 33 per cent of the average wage with no children to the same family

type with two children OECD-30

0

10

20

30

40

50

60

Mex

ico

Kor

eaIre

land NZ

Icel

and

US

Japa

nS

witz

erla

ndLu

x'bo

urg

Can

ada

UK

Por

tuga

lN

orw

ayS

lova

k R

epS

pain

Net

h'la

nds

Gre

ece

Den

mar

kFi

nlan

dIta

lyTu

rkey

Pol

and

Cze

ch R

epA

ustri

aFr

ance

Sw

eden

Ger

man

yB

elgi

umH

unga

ry

0

10

20

30

40

50

60

100% and 33% AW wage with no children 100% and 33% AW wage with two children

Per cent Per cent

Aus

tral

ia



Page 105

Appendix chart 4.3.5 shows the tax wedge for a dual-income married couple earning 100 per cent and 33 per cent of the average wage with no children, compared to the same couple with two children. The tax wedge in Australia for this family with two children is 4.8 percentage points lower than the corresponding family with no children and is almost the same as the OECD-30 average, placing Australia thirteenth largest in the OECD-30.

Appendix chart 4.3.6: Marginal tax wedge comparison of a dual-income family earning 100 per cent and 33 per cent of the average wage with no children to the same family

type with two children OECD-30

0

10

20

30

40

50

60

70

80

Mex

ico

Kor

eaJa

pan

NZ

Irela

nd US

Sw

itzer

land

Lux'

bour

gP

ortu

gal

Icel

and

UK

Can

ada

Nor

way

Den

mar

kS

lova

k R

epTu

rkey

Spa

inP

olan

dC

zech

Rep

Sw

eden

Net

h'la

nds

Fran

ceIta

lyG

reec

eFi

nlan

dA

ustri

aG

erm

any

Bel

gium

Hun

gary

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.3.6 shows the marginal tax wedge for a dual-income married couple earning 100 per cent and 33 per cent of the average wage with no children, compared to the same couple with two children. The Australian marginal tax wedge is the same for both of these families. This is because the family tax benefit for families with two children at this income level is paid as a flat rate per child until a much higher income is reached. This is also the case for twenty other countries in the OECD-30.


Page 106

Appendix chart 4.3.7: Tax wedge comparison of a single-income married couple earning the average wage with two children to a dual-income couple earning

100 per cent and 33 per cent with two children OECD-30

0

10

20

30

40

50

60

Irela

ndIc

elan

dU

SLu

x'bo

urg

NZ

Kor

eaM

exic

oS

witz

erla

ndC

anad

aS

lova

k R

epJa

pan

Por

tuga

lC

zech

Rep UK

Net

h'la

nds

Den

mar

kN

orw

ayS

pain

Italy

Aus

tria

Ger

man

yFi

nlan

dG

reec

eH

unga

ryB

elgi

umFr

ance

Pol

and

Sw

eden

Turk

ey

0

10

20

30

40

50

60

Married one earner at AW wage with two children 100% and 33% AW wage with two children

Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.3.7 shows the tax wedge for a single-income married couple earning the average wage with two children compared to the same couple with a second income of 33 per cent of the average wage. In Australia, if a previously unemployed spouse returns to work and earns 33 per cent of the average wage, the overall tax wedge of the family increases by 4.5 percentage points. This is the result of family benefits being progressively phased out as the family income increases. Australia’s increase in tax wedge is the eighth largest in the OECD-30. Most OECD-30 countries follow the same trend, with the tax wedge increasing at least slightly.


Page 107

Appendix chart 4.3.8: Marginal tax wedge comparison of a single-income married couple earning the average wage with two children to a dual-income couple earning

100 per cent and 33 per cent with two children OECD-30

0

10

20

30

40

50

60

70

80

Kor

eaM

exic

oLu

x'bo

urg

Japa

nS

witz

erla

ndIre

land

Por

tuga

lU

KN

orw

ayD

enm

ark

Slo

vak

Rep

Turk

eyS

pain

Pol

and

Icel

and

Sw

eden US

Net

h'la

nds

Fran

ceG

reec

e

Italy

Finl

and

Ger

man

yC

anad

aC

zech

Rep

Aus

tria

NZ

Bel

gium

Hun

gary

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.3.8 shows the marginal tax wedge for a single-income married couple earning the average wage with two children compared to the same couple with a second income of 33 per cent of the average wage. Australia’s marginal tax wedge is 18.9 percentage points lower for the dual-income family, compared to the single-income family. This is because the single-income family receives family benefits that are included in its marginal tax wedge, while the dual-income family does not. This is the second largest decrease in the OECD-30. Only New Zealand has a larger decrease of 30 percentage points, while the United States and Canada have decreases of 12 percentage points or more.


Page 108

APPENDIX 4.4: NET PERSONAL AVERAGE RATE FAMILY COMPARISONS

This appendix contains a comparison of the net personal average tax rates between the pairs of family types discussed in Appendix 4.3.

Appendix chart 4.4.1: Net personal average tax rate comparison of a single average worker with no children to a single-income married couple earning the average wage

with two children OECD-30

-10

0

10

20

30

40

50

Mex

ico

Kor

eaIre

land

Japa

nS

pain NZ

Por

tuga

lG

reec

eS

witz

erla

ndS

lova

k R

epC

anad

aU

S

Cze

ch R

epIc

elan

dU

KLu

x'bo

urg

Italy

Fran

ceN

orw

ayTu

rkey

Sw

eden

Finl

and

Pol

and

Aus

tria

Net

h'la

nds

Hun

gary

Den

mar

kG

erm

any

Bel

gium

-10

0

10

20

30

40

50


Per cent Per centA

ustr

alia

Source: OECD Taxing Wages, 2005. Appendix chart 4.4.1 shows the net personal average tax rate for a single average worker, compared to a single-income married couple earning the average wage with two children. In Australia, the net personal average tax rate of this family with two children is 13.1 percentage points lower than that for the average worker. This is the twelfth largest difference in the OECD-30, and is just above the OECD-30 average. Of the OECD-10 Ireland and the United States have larger differences than Australia.


Page 109

Appendix chart 4.4.2: Net personal marginal tax rate comparison of a single average worker with no children to a single-income married couple earning the average wage

with two children

0

10

20

30

40

50

60

70

80

Mex

ico

Kor

eaJa

pan

Spa

in US

Sw

itzer

land

Slo

vak

Rep

Cze

ch R

ep

Sw

eden

Turk

ey NZ

UK

Por

tuga

lP

olan

dC

anad

aN

orw

ayIc

elan

dFr

ance

Italy

Gre

ece

Finl

and

Aus

tria

Net

h'la

nds

Lux'

bour

gIre

land

Den

mar

kB

elgi

umG

erm

any

Hun

gary

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.4.2 shows the net personal marginal tax rate for a single worker earning the average wage compared to a single-income married couple earning the average wage with two children. In Australia, the net personal marginal tax rate for this married couple is 20 percentage points larger than that of an average worker. This is the second largest increase in the OECD-30. Ten countries in the OECD-30 have lower net personal marginal tax rates for families than for average workers without children.

Appendix chart 4.4.3: Net personal average tax rate comparison of a single worker earning 67 per cent of the average wage with no children to a single parent earning

67 per cent of the average wage with two children

-30

-20

-10

0

10

20

30

40

Mex

ico

Kor

eaIre

land

Por

tuga

lG

reec

eS

pain

Japa

nS

lova

k R

epC

anad

aS

witz

erla

nd NZ

Icel

and

Lux'

bour

g

US

Cze

ch R

epH

unga

ryIta

ly UK

Finl

and

Nor

way

Aus

tria

Fran

ceS

wed

enTu

rkey

Pol

and

Net

h'la

nds

Bel

gium

Ger

man

yD

enm

ark

-30

-20

-10

0

10

20

30

40

Single 67% AW wage with no children Single earner at 67% AW wage with two children

Per cent Per cent

Aus

tral

ia



Page 110

Appendix chart 4.4.3 shows the net personal average tax rate for a single worker earning 67 per cent of the average wage with no children, compared to the same worker with two children. The net personal average tax rate provided by Australia to the single worker with two children is 32.1 percentage points lower than for the single person with no children. This decrease is the third-largest in the OECD-30. Ireland has the largest difference.

Appendix chart 4.4.4: Net personal marginal tax rate comparison of a single worker earning 67 per cent of the average wage with no children to a single parent earning

67 per cent of the average wage with two children

0

10

20

30

40

50

60

70

80

Kor

eaM

exic

oG

reec

eJa

pan

NZ

Por

tuga

lC

zech

Rep

Irela

ndC

anad

aS

witz

erla

nd US

Slo

vak

Rep

Fran

ceTu

rkey UK

Lux'

bour

gS

pain

Pol

and

Sw

eden

Nor

way

Icel

and

Hun

gary

Italy

Finl

and

Den

mar

kA

ustri

aN

eth'

land

sG

erm

any

Bel

gium

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.4.4 shows the net personal marginal tax rate for a single worker earning 67 per cent of the average wage with no children compared to the same worker with two children. In Australia, the net personal marginal tax rate for this single parent is 34.9 percentage points larger than the same worker with no children. This is the third largest increase in the OECD-30 after the United Kingdom and Ireland. Eight countries in the OECD-30 have a higher net personal marginal tax rate for the single parent with two children.


Page 111

Appendix chart 4.4.5: Net personal average tax rate comparison of a dual-income family earning 100 per cent and 33 per cent of the average wage with no children to

the same family type with two children

0

10

20

30

40

50

Mex

ico

Kor

eaIre

land

Por

tuga

lS

pain

Japa

nLu

x'bo

urg

Slo

vak

Rep

Icel

and

Sw

itzer

land NZ

Can

ada

US

Gre

ece

Cze

ch R

epIta

ly UK

Fran

ceN

orw

ayFi

nlan

dH

unga

ryA

ustri

aN

eth'

land

sS

wed

enTu

rkey

Pol

and

Bel

gium

Ger

man

yD

enm

ark

0

10

20

30

40

50


Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.4.5 shows the net personal average tax rate for a dual-income married couple, earning 100 per cent and 33 per cent of the average wage with no children, compared to the same couple with two children. In Australia, the net personal average tax rate for this family with two children is 5.1 percentage points lower than for the corresponding family with no children. This is the thirteenth smallest difference in the OECD-30 and is almost the same as the OECD-30 average difference of 5.2 percentage points.

Appendix chart 4.4.6: Net personal marginal tax rate comparison of a dual-income family earning 100 per cent and 33 per cent of the average wage with no children to

the same family type with two children

0

10

20

30

40

50

60

70

80

Mex

ico

Kor

eaJa

pan

Por

tuga

lIre

land

Sw

itzer

land

Spa

in US

Slo

vak

Rep

Cze

ch R

epLu

x'bo

urg

Fran

ce

Sw

eden

Turk

ey NZ

UK

Pol

and

Can

ada

Nor

way

Icel

and

Italy

Gre

ece

Den

mar

kFi

nlan

dA

ustri

aN

eth'

land

sG

erm

any

Bel

gium

Hun

gary

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia



Page 112

Appendix chart 4.4.6 shows the net personal marginal tax rate for a dual-income married couple earning 100 per cent and 33 per cent of the average wage with no children compared to the same couple with two children. Like the marginal tax wedge, the Australian net personal marginal tax rate is the same for both these families. This is because the family tax benefit for families with two children at this income level is paid as a flat rate per child until a much higher income is reached. Twenty other countries in the OECD-30 also have the same net personal marginal tax rates for these family types. The differences for most OECD-30 countries are generally quite small.

Appendix chart 4.4.7: Net personal average tax rate comparison of a single-income married couple earning the average wage with two children to a dual-income couple

earning 100 per cent and 33 per cent with two children

0

10

20

30

40

50

Irela

ndLu

x'bo

urg

Cze

ch R

epS

lova

k R

ep US

Icel

and

Mex

ico

Kor

eaP

ortu

gal

Sw

itzer

land

Can

ada

Spa

inIta

ly NZ

Japa

nA

ustri

aFr

ance

Hun

gary UK

Nor

way

Net

h'la

nds

Gre

ece

Bel

gium

Ger

man

yFi

nlan

dS

wed

enD

enm

ark

Pol

and

Turk

ey

0

10

20

30

40

50


Per cent Per centA

ustr

alia

Source: OECD Taxing Wages, 2005. Appendix chart 4.4.7 shows the net personal average tax rate for a single-income married couple earning the average wage with two children, compared to a dual-income married couple earning 100 per cent and 33 per cent of the average wage with two children. The net personal average tax rate in Australia for this dual-income family is 4.7 percentage points higher than for the single-income family. This difference is the seventh-largest increase in the OECD-30.


Page 113

Appendix chart 4.4.8: Net personal marginal tax rate comparison of a single-income married couple earning the average wage with two children to a dual-income couple

earning 100 per cent and 33 per cent with two children

0

10

20

30

40

50

60

70

80

Kor

eaLu

x'bo

urg

Mex

ico

Japa

nP

ortu

gal

Sw

itzer

land

Irela

ndS

pain

Slo

vak

Rep

Fran

ceS

wed

enTu

rkey UK

Pol

and

Nor

way

Italy

Gre

ece

Cze

ch R

epIc

elan

dD

enm

ark

Finl

and

Aus

tria

US

Net

h'la

nds

Ger

man

y

Can

ada

Bel

gium N

ZH

unga

ry

0

10

20

30

40

50

60

70

80


Per cent Per cent

Aus

tral

ia

Source: OECD Taxing Wages, 2005. Appendix chart 4.4.8 shows the net personal marginal tax rate for a single-income married couple earning the average wage with two children, compared to a dual-income married couple earning 100 per cent and 33 per cent of the average wage with two children. In Australia, the net personal marginal tax rate is 20.0 percentage points smaller for the dual-income family than the single-income family. This is the second largest difference in the OECD-30 after New Zealand.


Page 114

APP

END

IX 4

.5: O

ECD

-10-

DES

CR

IPTI

VE W

AG

E A

ND

SA

LAR

Y TA

XATI

ON

TA

BLE

S

App

endi

x ta

ble

4.5.

1: O

ECD

-10

asse

ssab

le a

nd e

xem

pt in

com

e C

ount

ry

Ass

essa

ble

inco

me

Exem

pt in

com

e

Aust

ralia

Sa

lary

and

wag

e in

com

e, a

llow

ance

s, d

ivid

ends

, int

eres

t, ca

pita

l gai

ns, b

usin

ess

inco

me,

pe

nsio

ns, r

ents

, roy

altie

s, p

artn

ersh

ip in

com

e, d

istri

butio

ns fr

om tr

usts

, em

ploy

ee s

hare

/opt

ion

inte

rest

. Fr

inge

ben

efits

are

als

o ta

xed,

alth

ough

und

er a

diff

eren

t rat

e st

ruct

ure

to p

erso

nal i

ncom

e ta

x.

Num

ber o

f typ

es o

f exe

mpt

inco

me,

incl

udin

g di

sabi

lity

supp

ort p

ensi

ons,

ve

tera

ns a

ffairs

dis

abili

ty p

ensi

ons,

cer

tain

pay

and

allo

wan

ces

for

defe

nce

forc

e pe

rson

nel,

amou

nts

on w

hich

fam

ily tr

ust d

istri

butio

n ta

x ha

s be

en p

aid,

fam

ily p

aym

ents

suc

h as

fam

ily ta

x be

nefit

and

chi

ld c

are

bene

fit.

Can

ada

Inco

me

tax

sour

ces

(wor

ldw

ide

inco

me)

— e

mpl

oym

ent i

ncom

e, b

usin

ess

inco

me,

pro

perty

in

com

e an

d ca

pita

l gai

ns. P

rope

rty in

com

e co

nsis

ts o

f pas

sive

inco

me,

suc

h as

rent

, int

eres

t, ro

yalti

es a

nd d

ivid

ends

, ear

ned

thro

ugh

inve

stm

ent a

ctiv

ities

. Frin

ge b

enef

its a

re p

art o

f the

tax

base

.

Seve

ral t

ypes

of e

xem

pt in

com

e, in

clud

ing

capi

tal g

ains

real

ised

on

the

disp

ositi

on o

f a p

rinci

pal r

esid

ence

, dam

ages

for p

erso

nal i

njur

y, d

eath

be

nefit

s re

ceiv

ed u

nder

a li

fe in

sura

nce

polic

y.

Irela

nd

Inco

me

is ta

xed

acco

rdin

g to

a s

ched

ular

sys

tem

, bas

ed o

n th

e na

ture

of t

he in

com

e so

urce

. The

cu

rrent

app

licab

le s

ched

ules

are

: C

: pr

ofits

from

pay

men

t of i

nter

est a

nd d

ivid

ends

out

of p

ublic

reve

nue

whe

n pa

yabl

e in

Irel

and;

D

C

ase

I: tra

ding

pro

fits,

Cas

e II:

pro

fits

from

the

exer

cise

of p

rofe

ssio

ns, C

ase

III: u

ntax

ed

inte

rest

and

fore

ign

inco

me,

Cas

e IV

: any

oth

er in

com

e or

pro

fit n

ot o

ther

wis

e ta

xabl

e,

Cas

e V:

rent

al in

com

e fro

m la

nd in

Irel

and;

E:

in

com

e fro

m e

mpl

oym

ent a

nd p

ensi

ons;

F:

di

strib

utio

ns fr

om re

side

nt c

orpo

ratio

ns.

Spec

ific

exem

ptio

ns a

re g

rant

ed fo

r sev

eral

item

s, fo

r exa

mpl

e, ro

yalti

es

rece

ived

by

resi

dent

taxp

ayer

s fro

m p

aten

ts (p

rovi

ded

that

the

activ

ity

lead

ing

to it

s in

vent

ion

was

car

ried

out i

n Ire

land

).

Japa

n To

tal w

orld

wid

e in

com

e of

resi

dent

indi

vidu

als

is s

ubje

ct to

inco

me

tax.

The

re a

re 1

0 in

com

e so

urce

s th

at in

com

e ta

xes

appl

y to

: int

eres

t, di

vide

nd, r

eal e

stat

e, b

usin

ess,

em

ploy

men

t, re

tirem

ent,

fore

stry

, cap

ital g

ains

, occ

asio

nal a

nd m

isce

llane

ous

inco

me.

Som

e be

nefit

s in

kin

d re

ceiv

ed b

y th

e ta

xpay

ers

are

asse

ssab

le to

the

taxp

ayer

, for

exa

mpl

e, p

rivat

e us

e of

an

empl

oyer

pro

vide

d au

tom

obile

.

Seve

ral f

orm

s of

exe

mpt

em

ploy

men

t inc

ome,

suc

h as

som

e be

nefit

s in

ki

nd (f

or e

xam

ple

mov

ing

expe

nses

), co

mm

uter

allo

wan

ce u

p to

a

max

imum

thre

shol

d. E

xem

ptio

n fo

r int

eres

t acc

rued

from

cur

rent

ban

k de

posi

ts.

Net

herla

nds

A sc

hedu

lar s

yste

m o

pera

tes.

Onl

y th

e ite

ms

incl

uded

in th

e sc

hedu

le a

re ta

xabl

e. T

he s

ched

ule

cont

ains

diff

eren

t box

es.

Box

1 in

clud

es in

com

e fro

m e

mpl

oym

ent,

busi

ness

, oth

er a

ctiv

ities

, per

iodi

cal p

aym

ents

(fro

m

indi

vidu

als

and

the

stat

e), o

wne

r-occ

upie

d dw

ellin

gs. F

ringe

ben

efits

are

incl

uded

in th

e de

finiti

on o

f the

taxa

ble

wag

e.

Box

2 is

inco

me

from

sub

stan

tial s

hare

hold

ings

(div

iden

ds a

nd c

apita

l gai

ns) b

oth

resi

dent

and

no

n-re

side

nt c

ompa

nies

. Bo

x 3

is in

com

e fro

m s

avin

gs a

nd in

vest

men

t.

Exem

pt in

com

e Bo

x 3

— a

num

ber o

f ass

ets

are

excl

uded

from

the

taxa

ble

base

, inc

ludi

ng o

wne

r-oc

cupi

ed d

wel

lings

and

cer

tain

cap

ital

insu

ranc

e po

licie

s us

ed to

fina

nce

owne

r-occ

upie

d dw

ellin

gs.

Page 115


Page 115

App

endi

x ta

ble

4.5.

1: O

ECD

-10

asse

ssab

le a

nd e

xem

pt in

com

e (c

ontin

ued)

C

ount

ry

Ass

essa

ble

inco

me

Exem

pt in

com

e N

ew Z

eala

nd

Res

iden

ts a

re s

ubje

ct to

inco

me

tax

on th

eir w

orld

wid

e in

com

e. A

n in

divi

dual

who

is a

n em

ploy

ee is

sub

ject

to ta

x on

all

mon

etar

y re

mun

erat

ion

paid

by

an e

mpl

oyer

. Mon

etar

y re

mun

erat

ion

mea

ns a

ny s

alar

y, w

age,

allo

wan

ce, b

onus

, gra

tuity

, ext

ra s

alar

y, c

ompe

nsat

ion

for l

oss

of e

mpl

oym

ent,

emol

umen

t of w

hate

ver k

ind,

or o

ther

ben

efit

in m

oney

, in

resp

ect o

f or

in re

latio

n to

the

empl

oym

ent o

r ser

vice

of t

he ta

xpay

er.

Gen

eral

ly, f

ringe

ben

efits

are

not

incl

uded

in a

sses

sabl

e in

com

e bu

t are

inst

ead

subj

ect t

o fri

nge

bene

fits

tax

at a

diff

eren

t rat

e.

Ran

ge o

f exe

mpt

inco

me

— in

clud

ing

reim

burs

ing

allo

wan

ces,

wor

ker’s

co

mpe

nsat

ion

unde

r the

Wor

ker’s

Com

pens

atio

n A

ct 1

956,

whe

ther

re

ceiv

ed a

s a

lum

p su

m o

r wee

kly

paym

ents

.

Spai

n In

com

e ta

x is

levi

ed o

n al

l wor

ldw

ide

inco

me.

Tax

paye

r inc

ome

is c

lass

ified

into

five

cat

egor

ies:

em

ploy

men

t inc

ome,

inve

stm

ent i

ncom

e, b

usin

ess

inco

me,

cap

ital g

ains

and

impu

ted

inco

me.

In

com

e is

taxa

ble

in th

e ye

ar o

f acc

rual

of t

he in

com

e, r

egar

dles

s of

the

time

of c

ash

rece

ipt.

If th

e in

com

e ha

s be

en g

ener

ated

dur

ing

mor

e th

an tw

o ye

ars,

onl

y 60

per

cen

t of i

t is

taxa

ble.

Seve

ral e

xem

pt fo

rms

of in

com

e, s

uch

as p

ensi

ons

paid

by

soci

al s

ecur

ity

to s

ever

ely

disa

bled

taxp

ayer

s.

Switz

erla

nd

Taxa

ble

on w

orld

wid

e in

com

e in

clud

ing:

ear

ned

inco

me,

em

ploy

men

t inc

ome,

inve

stm

ent

inco

me,

soc

ial s

ecur

ity p

aym

ents

and

inco

me

from

oth

er s

ourc

es. B

enef

its in

kin

d ar

e in

clud

ed in

em

ploy

men

t inc

ome

at th

eir m

arke

t val

ue. T

hese

incl

ude:

com

pany

car

s an

d ch

ild c

are

or

educ

atio

n ex

pens

es o

f chi

ldre

n pa

id b

y th

e em

ploy

er.

Seve

ral t

ypes

of e

xem

pt in

com

e, in

clud

ing

inte

rest

on

savi

ngs

acco

unts

(u

p to

cer

tain

lim

its),

inhe

ritan

ces,

gift

s an

d m

atrim

onia

l pro

perty

righ

ts.

Uni

ted

King

dom

To

tal i

ncom

e co

mpr

ises

inco

me

from

all

sour

ces.

Inco

me

rece

ived

by

an in

divi

dual

as

sala

ry a

nd

wag

es is

sub

ject

to in

com

e ta

x as

em

olum

ents

rece

ived

from

an

offic

e of

em

ploy

men

t. In

com

e al

so in

clud

es p

ensi

on in

com

e, d

ivid

ends

, int

eres

t, ro

yalti

es, r

enta

l inc

ome

and

capi

tal

gain

s.

A nu

mbe

r of s

peci

fic e

xem

pt in

com

e ca

tego

ries,

incl

udin

g in

tere

st o

n in

com

e ta

x re

paym

ents

.

Uni

ted

Stat

es

Uni

ted

Stat

es c

itize

ns a

nd re

side

nts

are

taxe

d on

all

inco

me

from

all

sour

ces.

Thi

s in

clud

es

wag

es, s

alar

y, b

usin

ess

inco

me,

and

inve

stm

ent i

ncom

e.

All i

ncom

e (o

ther

than

cap

ital g

ains

and

cer

tain

div

iden

ds) i

s co

mbi

ned

and

taxe

d at

the

sam

e ra

te.

Ther

e ar

e a

num

ber o

f cat

egor

ies

of e

xem

pt in

com

e, in

clud

ing

gifts

and

in

herit

ance

s, a

nd in

tere

st o

n bo

nds

issu

ed b

y U

S st

ates

and

m

unic

ipal

ities

for q

ualif

ied

publ

ic p

urpo

ses.

Sour

ce: v

ario

us, s

ee C

hapt

er 1

(1.4

.1).

Page 116


App

endi

x ta

ble

4.5.

2: O

ECD

-10

dedu

ctio

ns

Cou

ntry

Pe

rson

al a

llow

ance

s W

ork-

rela

ted

dedu

ctio

ns

Taxe

s/so

cial

sec

urity

O

ther

ded

uctio

ns

Aust

ralia

Wor

k-re

late

d de

duct

ions

are

dire

ctly

rela

ted

to g

aini

ng

or p

rodu

cing

an

empl

oyee

’s a

sses

sabl

e in

com

e.

O

ther

ded

uctio

ns in

clud

e gi

fts, f

ilm

indu

stry

ince

ntiv

es a

nd e

xpen

ses

such

as

the

cost

of m

anag

ing

tax

affa

irs.

Can

ada

Em

ploy

ees

only

ded

uct e

xpen

ses

spec

ifica

lly

legi

slat

ed (f

airly

lim

ited)

. Ex

ampl

es o

f spe

cific

ded

uctio

ns w

hich

are

all

subj

ect

to c

erta

in c

ondi

tions

— a

ccou

ntin

g an

d le

gal f

ees,

al

low

able

mot

or v

ehic

le e

xpen

ses,

trav

ellin

g ex

pens

es, p

arki

ng, s

uppl

ies,

sub

stitu

te’s

sal

ary,

offi

ce

rent

and

wor

k-in

-the-

hom

e ex

pens

es.

A ta

xpay

er m

ay d

educ

t ce

rtain

am

ount

s co

ntrib

uted

to a

n R

PP (a

re

gist

ered

pen

sion

pla

n)

Irela

nd

Tota

l exe

mpt

ion

appl

ies

from

inco

me

tax

for

inco

mes

up

to €

5,21

0 (d

oubl

e fo

r mar

ried

taxp

ayer

s).

Expe

nses

incu

rred

who

lly, e

xclu

sive

ly a

nd n

eces

saril

y in

the

perfo

rman

ce o

f the

dut

ies

of th

e of

fice

or

empl

oym

ent a

re d

educ

tible

. In

gene

ral,

dedu

ctio

ns a

re

allo

wed

for e

xpen

ditu

re o

n sp

ecia

l clo

thin

g w

orn

in th

e pe

rform

ance

of t

he ta

xpay

er’s

dut

ies,

exp

endi

ture

on

tool

s an

d ex

tra e

xpen

ditu

re in

curr

ed b

y co

mm

erci

al

trave

llers

.

Japa

n Ty

pes

of a

llow

ance

s av

aila

ble:

bas

ic,

spou

se, d

epen

dant

s.

Basi

c: ta

xpay

er m

ay d

educ

t ¥38

0,00

0 fro

m

inco

me.

Sp

ouse

: ¥38

0,00

0 (m

ust m

eet

requ

irem

ents

). D

epen

dant

: ¥38

0,00

0 pe

r dep

enda

nt (s

ame

requ

irem

ents

as

for t

he s

pous

e).

Spec

ific

dedu

ctio

ns th

at e

xcee

d th

e st

anda

rd

dedu

ctio

n fo

r em

ploy

men

t inc

ome

are

allo

wed

. Sp

ecifi

c de

duct

ions

incl

ude

trave

lling

expe

nses

.

D

educ

tions

for e

mpl

oym

ent i

ncom

e,

soci

al in

sura

nce

prem

ium

s an

d m

edic

al e

xpen

ses.

Net

herla

nds

Box

3 —

a b

asic

allo

wan

ce o

f €19

,522

(d

oubl

e fo

r mar

ried

coup

les)

. In

gen

eral

, in

com

putin

g ta

xabl

e in

com

e fro

m B

oxes

1

and

2, a

ll ex

pens

es in

curre

d w

hich

are

nec

essa

ry to

ob

tain

, col

lect

or m

aint

ain

inco

me

may

be

dedu

cted

. In

the

case

of B

ox 3

, exp

ense

s ar

e tre

ated

as

liabi

litie

s de

duct

ible

from

the

taxa

ble

base

. Cer

tain

ex

pens

es o

f a m

ixed

cha

ract

er a

re n

ot d

educ

tible

, or

are

dedu

ctib

le s

ubje

ct to

cer

tain

lim

its.

Page 117


Page 117

App

endi

x ta

ble

4.5.

2: O

ECD

-10

dedu

ctio

ns (c

ontin

ued)

C

ount

ry

Pers

onal

allo

wan

ces

Wor

k re

late

d de

duct

ions

Ta

xes/

soci

al s

ecur

ity

Oth

er d

educ

tions

N

ew Z

eala

nd

Ex

pens

es in

curr

ed in

pro

duci

ng g

ross

inco

me

may

be

clai

med

as

a de

duct

ion

from

inco

me

limits

exp

endi

ture

th

at is

of a

cap

ital,

priv

ate,

exe

mpt

inco

me

and

non-

resi

dent

s’ fo

reig

n-so

urce

d in

com

e na

ture

, and

al

so li

mits

em

ploy

men

t exp

ense

s du

e to

with

hold

ing

taxe

s.

Spai

n Pe

rson

al a

llow

ance

of €

3,40

0 fo

r eac

h ta

xpay

er, d

oubl

e fo

r spo

uses

filin

g a

join

t tax

re

turn

. Fa

mily

allo

wan

ce d

epen

ds o

n th

e nu

mbe

r of

depe

ndan

ts, t

heir

age

and

inco

me.

S

ocia

l sec

urity

co

ntrib

utio

ns.

Trad

e un

ion

fees

, com

puls

ory

fees

pa

id to

pro

fess

iona

l ass

ocia

tions

and

le

gal e

xpen

ses

in c

onne

ctio

n w

ith

the

term

inat

ion

of e

mpl

oym

ent.

Switz

erla

nd

Taxp

ayer

may

ded

uct C

HF6

,100

in 2

006

for:

• ea

ch c

hild

und

er 1

8 ye

ars

of a

ge w

ho is

su

ppor

ted

by th

e ta

xpay

er;

• ea

ch c

hild

old

er th

an 1

8 ye

ars

who

is

stud

ying

or l

earn

ing

a tra

de a

nd w

ho is

su

ppor

ted

by th

e ta

xpay

er; a

nd

• ea

ch o

ther

per

son

inca

pabl

e of

gai

ning

em

ploy

men

t. Fo

r a m

arrie

d co

uple

, an

annu

al d

educ

tion

of C

HF7

,600

from

200

6 is

gra

nted

from

the

earn

ed in

com

e of

the

spou

se w

ith th

e lo

wer

in

com

e.

Nec

essa

ry w

ork-

rela

ted

expe

nses

are

ded

uctib

le.

Obl

igat

ory

soci

al s

ecur

ity

prem

ium

s ar

e fu

lly

dedu

ctib

le.

Prem

ium

s fo

r hea

lth in

sura

nce,

pr

ivat

e ac

cide

nt a

nd li

fe in

sura

nces

(a

s w

ell a

s in

tere

st re

ceiv

ed fr

om

savi

ngs

acco

unts

) are

ded

uctib

le u

p to

CH

F1,7

00 in

200

6 pe

r yea

r for

a

sing

le ta

xpay

er a

nd C

HF3

,300

in

2006

for a

mar

ried

coup

le, p

lus

700

for e

ach

min

or c

hild

or d

epen

dent

pe

rson

in n

eed.

If n

o pr

emiu

ms

are

paid

, sin

gle

taxp

ayer

s m

ay d

educ

t C

HF2

,550

in 2

006

and

mar

ried

taxp

ayer

s C

HF4

,950

in 2

006.

In

tere

st p

aid

on d

ebts

(lim

ited

to a

m

axim

um o

f CH

F50,

000

plus

in

vest

men

t inc

ome)

, alim

ony

and

child

sup

port

paym

ents

, exp

ense

s fo

r sic

knes

s (if

exc

eedi

ng 5

per

cen

t of

the

net i

ncom

e) a

nd d

onat

ions

(li

mite

d).

Page 118


App

endi

x ta

ble

4.5.

2: O

ECD

-10

dedu

ctio

ns (c

ontin

ued)

C

ount

ry

Pers

onal

allo

wan

ces

Wor

k re

late

d de

duct

ions

Ta

xes/

soci

al s

ecur

ity

Oth

er d

educ

tions

U

nite

d Ki

ngdo

m

Uni

ted

King

dom

per

sona

l allo

wan

ce

avai

labl

e to

all

taxp

ayer

s —

£4,

895

for

2005

/200

6.

Mos

t ded

uctio

ns in

the

Uni

ted

King

dom

mus

t be

incu

rred

who

lly, e

xclu

sive

ly a

nd n

eces

saril

y in

the

perfo

rman

ce o

f an

empl

oyee

’s d

utie

s, a

con

ditio

n th

at

prec

lude

s th

e de

duct

ion

of m

any

empl

oym

ent-r

elat

ed

expe

nses

.

Uni

ted

Stat

es

Fede

ral p

erso

nal e

xem

ptio

n of

US

$3,3

00 in

20

06. E

xem

ptio

n is

inde

xed

each

yea

r with

in

flatio

n.

Expe

nses

dire

ctly

rela

ted

to e

mpl

oym

ent i

ncom

e m

ay

be d

educ

ted.

St

ate

and

loca

l tax

es a

re

dedu

ctib

le w

here

a

taxp

ayer

cho

oses

to

item

ise

dedu

ctio

ns.

Taxp

ayer

s ca

n ta

ke a

sta

ndar

d de

duct

ion

(the

amou

nt d

epen

ds o

n th

e ta

xpay

er’s

filin

g st

atus

) or

item

ise

thei

r ded

uctio

ns.

Sour

ce: v

ario

us, s

ee C

hapt

er 1

(1.4

.1).

App

endi

x ta

ble

4.5.

3: O

ECD

-10

coun

trie

s —

tax

unit

Cou

ntry

Ta

x U

nit

Aust

ralia

In

divi

dual

Can

ada

Indi

vidu

al is

the

tax

unit,

but

join

t tax

atio

n is

als

o po

ssib

le.

Irela

nd

Gen

eral

ly b

ased

on

mar

ital s

tatu

s an

d nu

mbe

r of d

epen

dent

s, h

owev

er m

arrie

d ta

xpay

ers

can

choo

se s

epar

ate

treat

men

t.

Japa

n In

divi

dual

Net

herla

nds

Indi

vidu

al

New

Zea

land

In

divi

dual

Spai

n G

over

nmen

t reg

ulat

es w

heth

er a

per

son

is ta

xed

indi

vidu

ally

or j

oint

ly.

Switz

erla

nd

Mar

ried

coup

les

gene

rally

hav

e to

lodg

e ta

x re

turn

s to

geth

er a

nd th

e in

com

e is

then

agg

rega

ted.

Uni

ted

King

dom

In

divi

dual

Uni

ted

Stat

es

Tax

rate

s va

ry d

epen

ding

on

the

retu

rn s

tatu

s of

the

taxp

ayer

. The

re a

re fo

ur c

ateg

orie

s:

• m

arrie

d pe

rson

s fil

ing

join

t ret

urns

that

com

bine

all

thei

r inc

ome

and

dedu

ctio

ns;

• he

ads

of h

ouse

hold

s;

• un

mar

ried

indi

vidu

als,

that

is s

ingl

e ta

xpay

ers;

and

•

mar

ried

pers

ons

filin

g se

para

te re

turn

s, w

ith e

ach

spou

se re

porti

ng th

eir o

wn

inco

me

and

dedu

ctio

ns o

n a

sepa

rate

retu

rn.

Sour

ce: v

ario

us, s

ee C

hapt

er 1

(1.4

.1).

Page 119


Page 119

App

endi

x ta

ble

4.5.

4: O

ECD

-10

— N

atio

nal p

erso

nal i

ncom

e ta

x ra

tes

and

cred

its

Cou

ntry

Ta

x ra

tes

Cre

dits

Au

stra

lia

Tax

rate

bra

cket

s fro

m 1

Jul

y 20

06:

Up

to

A$6,

000

0 pe

r cen

t A$

6,00

0 A$

21,6

00

15 p

er c

ent

A$21

,600

A$

70,0

00

30 p

er c

ent

A$70

,000

A$

125,

000

42 p

er c

ent

Ove

r A$

125,

000

47 p

er c

ent

Med

icar

e le

vy o

f 1.5

per

cen

t. Lo

wer

rate

s ap

ply

for l

ow in

com

e in

divi

dual

s an

d fa

milie

s. M

edic

are

levy

sur

char

ge is

app

lied

to

indi

vidu

als

who

do

not h

ave

priv

ate

heal

th in

sura

nce

and

who

se in

com

e ex

ceed

s th

e re

leva

nt th

resh

old

(A$5

0,00

0 fo

r sin

gles

, A$

100,

000

for c

oupl

es).

Frin

ge b

enef

its a

re ta

xed

at 4

8.5

per c

ent a

nd th

e ta

x is

pai

d by

em

ploy

ers.

Low

inco

me

tax

offs

et —

max

imum

of $

235.

Pa

yabl

e up

to in

com

es o

f A$2

1,60

0, p

hasi

ng

out a

t 4 c

ents

in th

e do

llar u

p to

A$2

7,47

5.

Ran

ge o

f oth

er o

ffset

s in

clud

ing

offs

ets

for

depe

ndan

ts, s

enio

rs, p

ensi

oner

s an

d m

edic

al e

xpen

ses.

Thr

ee re

fund

able

tax

offs

ets

— b

aby

bonu

s, p

rivat

e he

alth

in

sura

nce

and

frank

ing

tax

offs

et.

Can

ada

Tax

rate

bra

cket

s fro

m 1

Jan

uary

200

6:

Up

to

C$3

6,37

8 15

per

cen

t C

$36,

378

C$7

2,75

6 22

per

cen

t C

$72,

756

C$1

18,2

85

26 p

er c

ent

Ove

r C

$118

,285

29

per

cen

t Th

resh

olds

are

inde

xed

to in

flatio

n.

Indi

vidu

als

can

be s

ubje

ct to

an

alte

rnat

ive

min

imum

fede

ral i

ncom

e ta

x. T

he b

ase

for m

inim

um ta

x pu

rpos

es d

iffer

s fro

m th

e no

rmal

tax

base

. The

indi

vidu

al m

ultip

lies

thei

r inc

ome

for m

inim

um ta

x pu

rpos

es b

y th

e lo

wes

t fed

eral

tax

rate

(15

per c

ent).

If

the

resu

lting

tax

exce

eds

norm

al fe

dera

l tax

pay

able

, the

taxp

ayer

mus

t pay

the

min

imum

tax

amou

nt.

Basi

c cr

edit:

All

taxp

ayer

s qu

alify

for a

bas

ic

pers

onal

tax

cred

it of

C$1

,356

in 2

006.

O

ther

cre

dits

incl

ude

spou

sal c

redi

t for

sp

ousa

l inc

ome,

dis

able

d de

pend

ent’s

cr

edit,

an

age

cred

it, d

isab

ility

cred

it, tu

ition

an

d ed

ucat

ion

cred

it, tr

ansf

er o

f spo

use’

s cr

edits

, med

ical

exp

ense

s cr

edit,

cha

ritab

le

dona

tions

, and

pen

sion

cre

dits

. C

redi

ts o

f 15

per c

ent a

re a

vaila

ble

for

cont

ribut

ions

to th

e C

anad

a or

Que

bec

Pens

ion

Plan

s an

d th

eir E

mpl

oym

ent

insu

ranc

e pr

emiu

ms,

but

not

exc

eedi

ng th

e m

axim

um p

rem

ium

allo

wed

.

Page 120


App

endi

x ta

ble

4.5.

4: O

ECD

-10

— N

atio

nal p

erso

nal i

ncom

e ta

x ra

tes

and

cred

its (c

ontin

ued)

C

ount

ry

Tax

rate

s C

redi

ts

Irela

nd

Indi

vidu

als

can

dete

rmin

e, fo

r nat

iona

l inc

ome

tax

purp

oses

, if t

hey

are

taxe

d se

para

tely

or j

oint

ly. T

he s

tand

ard

and

high

er

rate

s of

inco

me

tax

are

20 a

nd 4

2 pe

r cen

t res

pect

ivel

y. T

ax a

t the

sta

ndar

d ra

te is

cha

rgea

ble

on in

com

e up

to th

e st

anda

rd

rate

cut

-off

poin

t. St

anda

rd c

ut-o

ff po

int S

ingl

e/w

idow

er

€32,

000

Mar

ried

coup

le (o

ne in

com

e)

up to

€41

,000

M

arrie

d co

uple

(tw

o in

com

es)

up to

a m

ax o

f €64

,000

(thr

esho

ld is

incr

ease

d by

the

amou

nt o

f the

low

est

inco

me

to a

max

imum

of €

23,0

00)

One

par

ent f

amily

€3

6,00

0 Ta

xpay

ers

with

inco

me

belo

w tw

ice

the

rele

vant

exe

mpt

ion

limit

(rele

vant

exe

mpt

ion

limit

is €

5,21

0 fo

r sin

gles

and

€10

,420

for

mar

ried

pers

ons)

pay

a lo

wer

rate

of t

ax k

now

n as

the

mar

gina

l rel

ief t

ax. T

he m

argi

nal r

elie

f lim

its th

e ta

x bu

rden

to

40 p

er c

ent.

A si

ngle

per

son

is e

ntitl

ed to

a c

redi

t of

€1,6

30 p

er y

ear.

The

mar

ried

pers

on’s

cre

dit

is €

3,26

0 pe

r yea

r. O

ther

cre

dits

are

ava

ilabl

e w

here

taxp

ayer

s ar

e el

igib

le, s

uch

as th

e PA

YE c

redi

t, w

idow

’s c

redi

t, de

pend

ent r

elat

ive’

s cr

edit,

an

d on

e pa

rent

fam

ily c

redi

t.

Japa

n Th

e fo

rmul

a is

inco

me

A-B-

C, w

here

A is

the

taxa

ble

inco

me

by ta

x ra

te, B

is s

tand

ard

dedu

ctio

n, a

nd C

is p

ropo

rtion

al ta

x re

duct

ion.

Tax

rate

bra

cket

s:

Ta

xabl

e In

com

e

Tax

Rat

e (p

er c

ent)

D

educ

tible

am

ount

of

eac

h br

acke

t O

ver

Not

Ove

r

A

B 0

¥3.3

M

10

0 ¥3

.3M

¥9

M

20

¥ 0.3

3M

¥9M

¥1

8M

30

¥ 1.2

3M

¥18M

37

¥ 2.4

9M

Prop

ortio

nal t

ax re

duct

ion

(C):

10 p

er c

ent o

f A-B

(cei

ling

¥125

,000

). Ta

x ra

te c

hang

es h

ave

been

pro

pose

d to

take

effe

ct fr

om

1 Ja

nuar

y 20

07 th

at a

re y

et to

be

legi

slat

ed.

Page 121


Page 121

App

endi

x ta

ble

4.5.

4: O

ECD

-10

— N

atio

nal p

erso

nal i

ncom

e ta

x ra

tes

and

cred

its (c

ontin

ued)

C

ount

ry

Tax

rate

s C

redi

ts

Net

herla

nds

For 2

006,

Box

1 in

com

e ra

tes

Up

to

€17,

046

34.1

5 pe

r cen

t (2.

45 p

er c

ent

inco

me

tax,

31.

7 pe

r cen

t Nat

iona

l in

sura

nce

cont

ribut

ions

) €1

7,04

6 €3

0,63

1 41

.45

per c

ent (

9.75

per

cen

t in

com

e ta

x, 3

1.7

per c

ent N

atio

nal

insu

ranc

e co

ntrib

utio

ns)

€30,

631

€52,

228

42 p

er c

ent (

inco

me

tax)

O

ver

€52,

228

52 p

er c

ent (

inco

me

tax)

Th

resh

olds

are

inde

xed

to in

flatio

n.

Box

2 in

com

e is

flat

at 2

5 pe

r cen

t. In

Box

3, t

he n

et y

ield

of 4

per

cen

t is

taxe

d at

a fl

at ra

te o

f 30

per c

ent,

resu

lting

in a

tax

of

1.2

per c

ent o

n th

e ne

t ass

ets.

For 2

006

inco

me

year

:

Gen

eral

Tax

Cre

dit f

or u

nder

65

of €

1990

;

Empl

oym

ent T

ax C

redi

t of €

1,35

7.

Ther

e ar

e ot

her c

redi

ts a

vaila

ble,

suc

h as

th

e ch

ild ta

x cr

edit

and

the

com

bina

tion

tax

cred

it.

New

Zea

land

Ta

x ra

te b

rack

ets:

U

p to

N

Z$38

,000

19

.5 p

er c

ent

NZ$

38,0

00

NZ$

60,0

00

33 p

er c

ent

Ove

r N

Z$60

,000

39

per

cen

t Fr

inge

ben

efits

can

eith

er b

e ca

lcul

ated

at a

flat

rate

of 6

4 pe

r cen

t or o

n a

mul

ti-ra

te b

ased

on

the

empl

oyee

’s re

mun

erat

ion.

The

max

imum

low

inco

me

reba

te is

N

Z$42

7.50

whi

ch is

calc

ulat

ed a

t 4.5

cen

ts in

th

e do

llar f

or in

com

e up

to N

Z$9,

500.

Whe

re

inco

me

is in

the

rang

e N

Z$9,

500

to

NZ$

38,0

00, t

he m

axim

um re

bate

is re

duce

d by

1.5

cen

ts fo

r eve

ry d

olla

r ove

r NZ$

9,50

0.

Spai

n Ta

x ra

te b

rack

ets

for t

he 2

006

inco

me

year

: U

p to

€4

,162

15 p

er c

ent

€4,1

62

€14,

358

24

per

cen

t €1

4,35

8 €2

6,84

2

28 p

er c

ent

€26,

842

€46,

818

37

per

cen

t O

ver

€46,

818

45

per

cen

t Si

nce

1 Ja

nuar

y 20

05, t

he th

resh

olds

hav

e be

en in

dexe

d by

2 p

er c

ent t

o m

itiga

te th

e ef

fect

of i

nfla

tion.

Page 122


App

endi

x ta

ble

4.5.

4: O

ECD

-10

— N

atio

nal p

erso

nal i

ncom

e ta

x ra

tes

and

cred

its (c

ontin

ued)

C

ount

ry

Tax

rate

s C

redi

ts

Switz

erla

nd

The

tota

l tax

bur

den

is li

mite

d to

11.

5 pe

r cen

t. Ta

x ra

te b

rack

ets

in 2

006

for m

arrie

d co

uple

s liv

ing

toge

ther

, and

to w

idow

ed, s

epar

ated

, div

orce

d or

sin

gle

pers

ons

livin

g w

ith c

hild

ren

who

are

min

or o

r stu

dyin

g at

thei

r exp

ense

:

Taxa

ble

Inco

me

Tax

on lo

wer

am

ount

R

ate

on

exce

ss

0 C

HF2

9,10

0 0

C

HF2

9,20

0 C

HF4

7,80

0 C

HF2

5 1

CH

F47,

900

CH

F54,

800

CH

F212

2

CH

F54,

900

CH

F70,

800

CH

F352

3

CH

F70,

900

CH

F85,

000

CH

F832

4

CH

F85,

100

CH

F97,

300

CH

F1,4

00

5 C

HF9

7,40

0 C

HF1

08,0

00

CH

F2,0

15

6 C

HF1

08,1

00

CH

F116

,900

C

HF2

,657

7

CH

F117

,000

C

HF1

23,9

00

CH

F3,2

80

8 C

HF1

24,0

00

CH

F129

,200

C

HF3

,840

9

CH

F129

,300

C

HF1

32,8

00

CH

F4,3

17

10

CH

F132

,900

C

HF1

34,6

00

CH

F4,6

77.9

9 11

C

HF1

34,7

00

CH

F136

,400

C

HF4

,875

12

C

HF1

36,5

00

CH

F843

,500

C

HF5

,091

13

C

HF8

43,6

00

C

HF9

7,01

4 11

.5

If ta

xabl

e in

com

e ex

ceed

s C

HF8

43,6

00, a

flat

rate

of 1

1.5

per c

ent a

pplie

d to

the

who

le in

com

e fo

r bot

h ty

pes

of ta

xpay

ers.

Sw

itzer

land

is re

quire

d to

mak

e a

thre

shol

d ad

just

men

t afte

r the

cum

ulat

ive

infla

tion

rate

has

incr

ease

d by

at l

east

7 p

er c

ent

sinc

e th

e la

st a

djus

tmen

t.

Uni

ted

King

dom

Ta

x ra

te b

rack

ets

inco

me

and

capi

tal g

ains

U

p to

₤2

,090

10

per

cen

t ₤2

,090

₤3

2,40

0 22

per

cen

t O

ver

₤32,

400

40 p

er c

ent

Thre

shol

ds a

re in

dexe

d in

line

with

infla

tion

unle

ss th

e Pa

rliam

ent s

peci

fies

this

is n

ot to

occ

ur

Low

inco

me

fam

ilies

may

be

entit

led

to a

w

orki

ng ta

x cr

edit

or c

hild

tax

cred

it.

Page 123


Page 123

App

endi

x ta

ble

4.5.

4: O

ECD

-10

— N

atio

nal p

erso

nal i

ncom

e ta

x ra

tes

and

cred

its (c

ontin

ued)

C

ount

ry

Tax

rate

s C

redi

ts

Uni

ted

Stat

es

The

tax

thre

shol

ds v

ary

depe

ndin

g on

the

filin

g st

atus

of a

taxp

ayer

. The

re a

re fo

ur c

ateg

orie

s of

taxp

ayer

: mar

ried

pers

ons

filin

g jo

intly

, hea

ds o

f hou

seho

lds

and

unm

arrie

d an

d m

arrie

d pe

rson

s fil

ing

join

tly. T

he ra

tes

that

app

ly a

re th

e sa

me.

Fo

r unm

arrie

d (s

ingl

e ta

xpay

ers)

the

tax

rate

bra

cket

s fo

r 200

6 ar

e as

follo

ws:

U

p to

U

S$7,

550

10 p

er c

ent

US$

7,55

0 U

S$30

,650

15

per

cen

t U

S$30

,650

U

S$74

,200

25

per

cen

t U

S$74

,200

U

S$15

4,80

0 28

per

cen

t U

S$15

4,80

0 U

S$33

6,55

0 33

per

cen

t O

ver

US$

336,

550

35 p

er c

ent

Indi

vidu

als

are

subj

ect t

o al

tern

ativ

e m

inim

um ta

x if

the

alte

rnat

ive

min

imum

tax

exce

eds

thei

r reg

ular

tax.

The

bas

e fo

r the

al

tern

ativ

e m

inim

um ta

x is

slig

htly

diff

eren

t. To

cal

cula

te th

e al

tern

ativ

e m

inim

um ta

x th

e ta

xpay

er d

eter

min

es th

e al

tern

ativ

e m

inim

um ta

xabl

e in

com

e (A

MTI

) and

sub

tract

s th

e AM

TI e

xem

ptio

n am

ount

. Th

resh

olds

are

inde

xed

annu

ally

for i

nfla

tion.

Low

inco

me

wor

kers

with

dep

enda

nts

are

entit

led

to a

refu

ndab

le e

arne

d in

com

e cr

edit.

Sour

ce: v

ario

us, s

ee C

hapt

er 1

(1.4

.1).

Page 124


App

endi

x ta

ble

4.5.

5: O

ECD

-10

sub-

natio

nal p

erso

nal i

ncom

e ta

xes

Cou

ntry

B

ase

Rat

es

Cre

dits

Au

stra

lia

No

sub-

natio

nal p

erso

nal i

ncom

e ta

xes.

Can

ada

For a

ll pr

ovin

ces,

exc

ept Q

uebe

c, th

e fe

dera

l gov

ernm

ent

colle

cts

both

indi

vidu

al a

nd c

orpo

rate

tax

on b

ehal

f of t

he

prov

ince

s. In

con

side

ratio

n, th

e pr

ovin

ces

use

the

fede

ral

inco

me

tax

base

. Pro

vinc

es a

lso

impo

se p

rovi

ncia

l sur

taxe

s on

pro

vinc

ial t

ax o

r inc

ome

abov

e sp

ecifi

ed a

mou

nts.

Th

e O

EC

D u

ses

the

Prov

ince

of O

ntar

io a

s th

e re

pres

enta

tive

sub-

cent

ral g

over

nmen

t, as

this

is th

e m

ost

popu

lous

pro

vinc

e.

The

top

rate

var

ies

acro

ss th

e pr

ovin

ces

from

24

per c

ent i

n Q

uebe

c to

10

per

cen

t in

Albe

rta.

Ont

ario

’s b

asic

tax

rate

bra

cket

s fro

m 1

Jan

uary

200

6 ar

e:

Up

to

C$3

4,75

8 6.

05 p

er c

ent

C$3

4,75

8 C

$69,

517

9.15

per

cen

t O

ver

C$6

9,51

7 11

.16

per c

ent

The

thre

shol

ds a

re in

dexe

d to

infla

tion.

O

ntar

io a

lso

levi

es a

sur

tax

with

rate

s of

20

per c

ent a

nd 3

6 pe

r cen

t de

pend

ing

on th

e ta

xpay

er’s

inco

me.

Ont

ario

has

a b

asic

inco

me

tax

cred

it of

C$8

,377

. C

redi

ts fo

r the

Can

ada

Pens

ion

Plan

and

for

Empl

oym

ent I

nsur

ance

pr

emiu

ms.

Irela

nd

No

sub-

natio

nal p

erso

nal i

ncom

e ta

xes.

Japa

n Su

b-na

tiona

l inc

ome

taxe

s in

Jap

an c

onsi

st o

f a p

refe

ctur

al

inha

bita

nts’

tax

levi

ed b

y pr

efec

ture

s an

d a

mun

icip

al

inha

bita

nts’

tax

levi

ed b

y ci

ties,

tow

ns a

nd v

illage

s.

Stan

dard

per

cap

ita ta

x ra

te o

f pre

fect

ural

inha

bita

nts’

is

¥1,0

00.

Stan

dard

per

cap

ita ta

x ra

te o

f Mun

icip

al in

habi

tant

s’ is

¥2

,000

to ¥

3,00

0 de

pend

ing

on th

e si

ze o

f the

mun

icip

ality

. Ta

x lia

bilit

y is

obt

aine

d by

mul

tiply

ing

the

taxa

ble

inco

me

by

tax

rate

(A) a

nd d

educ

ting

the

amou

nt (B

). In

add

ition

, Pr

opor

tiona

l Red

uctio

n (C

).

Prop

ortio

nal t

ax re

duct

ion

(C):

7.5

per c

ent o

f cal

cula

ted

amou

nt, t

hat i

s A-

B (c

eilin

g ¥2

0,00

0).

Ta

xabl

e In

com

e

Tax

Rat

e (p

er c

ent)

Ded

uctib

le a

mou

nt

of e

ach

brac

ket

Ove

r N

ot O

ver

A

B Pr

efec

tual

Inha

bita

nts’

tax

0 ¥7

M

2

0 ¥7

M

3 ¥0

.07M

M

unic

ipal

Inha

bita

nts’

tax

0 ¥2

M

3

0 ¥2

M

¥7M

8 ¥0

.1M

¥7

M

10

¥0.2

4M

Tax

rate

cha

nges

are

pro

pose

d fo

r 1 J

anua

ry 2

007.

Com

bine

d fla

t rat

e of

10

per

cen

t.

Net

herla

nds

No

sub-

natio

nal p

erso

nal i

ncom

e ta

xes.

New

Zea

land

N

o su

b-na

tiona

l per

sona

l inc

ome

taxe

s.

Spai

n N

o su

b-na

tiona

l per

sona

l inc

ome

taxe

s, h

owev

er, w

e ha

ve

rece

ived

con

flict

ing

info

rmat

ion

on th

is is

sue.

Page 125


Page 125

App

endi

x ta

ble

4.5.

5: O

ECD

-10

sub-

natio

nal p

erso

nal i

ncom

e ta

xes

(con

tinue

d)

Cou

ntry

B

ase

Rat

es

Cre

dits

Sw

itzer

land

Th

ere

are

no ru

les

on w

heth

er w

orld

wid

e or

onl

y do

mes

tic

inco

me

is ta

xabl

e. T

axab

le in

com

e in

clud

es a

ll re

curre

nt a

nd

non-

recu

rrent

inco

me

from

dep

ende

nt a

nd in

depe

nden

t ac

tiviti

es a

nd fr

om m

ovab

le a

nd im

mov

able

pro

perty

. It a

lso

incl

udes

pen

sion

s an

d so

cial

sec

urity

ben

efits

. Va

rious

form

s of

inco

me

are

exem

pt, i

nclu

ding

dam

ages

for

men

tal o

r phy

sica

l pai

n su

ffere

d.

The

OE

CD

use

s Zu

rich

as th

e ex

ampl

e ca

nton

al.

For a

ll ca

nton

s, a

ll ex

pens

es th

at a

re n

eces

sary

in o

rder

to

real

ise

taxa

ble

inco

me

are

dedu

ctib

le. S

ocia

l sec

urity

co

ntrib

utio

ns a

nd c

ontri

butio

ns to

app

rove

d sa

ving

s pl

ans,

pr

emiu

ms

for h

ealth

, priv

ate

acci

dent

and

life

insu

ranc

es u

p to

cer

tain

lim

its a

re a

ll de

duct

ible

. The

sta

ndar

d de

duct

ion

is

also

ava

ilabl

e w

ith h

ighe

r am

ount

s fo

r mar

ried

coup

les

and

amou

nts

vary

from

can

ton

to c

anto

n.

The

cant

ons

may

set

thei

r ow

n ta

x ra

tes.

The

can

tona

l law

s m

ust p

rovi

de

tax

redu

ctio

ns fo

r uns

epar

ated

spo

uses

, as

wel

l as

for w

idow

ed, s

epar

ated

, di

vorc

ed a

nd s

ingl

e ta

xpay

ers

mai

ntai

ning

chi

ldre

n or

nee

dy p

erso

ns.

Zuric

h ha

s 13

diff

eren

t tax

bra

cket

s at

a m

axim

um ra

te o

f 13

per c

ent.

Mun

icip

al in

com

e ta

xes

are

levi

ed in

the

form

of a

sur

char

ge o

n th

e ca

nton

al ta

x. T

he s

urch

arge

is e

qual

to th

e ba

sic

cant

onal

tax,

mul

tiplie

d by

a

mun

icip

al c

oeffi

cien

t. Th

e co

effic

ient

for t

he c

apita

l city

Zur

ich

in th

e ca

nton

of

Zur

ich

is 1

.22

(for 2

005)

.

Uni

ted

King

dom

N

o su

b-na

tiona

l per

sona

l inc

ome

taxe

s.

Uni

ted

Stat

es

Inco

me

tax

is im

pose

d by

mos

t sta

tes

(som

e us

ing

a pr

ogre

ssiv

e) a

nd b

y so

me

mun

icip

aliti

es b

ut it

is d

educ

tible

fo

r fed

eral

tax

purp

oses

for t

axpa

yers

that

item

ise

dedu

ctio

ns.

Som

e st

ates

als

o le

vy a

sal

es ta

x. P

erso

nal a

llow

ance

s an

d st

anda

rd d

educ

tions

var

y fro

m s

tate

to s

tate

.

Stat

e an

d lo

cal i

ncom

e ta

x ra

tes

vary

from

9.5

per

cen

t in

Verm

ont t

o 3

per c

ent i

n Ill

inoi

s.

New

Yor

k im

pose

s bo

th s

tate

and

city

inco

me

taxe

s. C

alifo

rnia

impo

ses

stat

e in

com

e ta

x. T

exas

doe

s no

t lev

y st

ate

inco

me

tax.

M

ichi

gan

has

a fla

t inc

ome

tax

rate

of 3

.90

per c

ent.

The

aver

age

wor

ker i

n th

e ca

meo

ana

lysi

s of

the

tax

wed

ge a

nd n

et p

erso

nal a

vera

ge ta

x ra

te is

as

sum

ed to

live

in D

etro

it, M

ichi

gan.

M

ost s

tate

s do

not

inde

x th

eir t

hres

hold

s.

Cre

dits

var

y fro

m s

tate

to

stat

e.

Sour

ce: v

ario

us, s

ee C

hapt

er 1

(1.4

.1).


Page 126

Appendix table 4.5.6: OECD-10 payroll taxes Country Payroll taxes Australia States levy payroll taxes. The OECD uses NSW as the indicative state. In NSW, payroll tax

applies at a 6 per cent flat rate above the A$600,000 firm wages threshold.

Canada n/a

Ireland n/a

Japan n/a

Netherlands n/a

New Zealand n/a

Spain n/a

Switzerland n/a

United Kingdom n/a

United States n/a Source: various, see Chapter 1 (1.4.1). Note: payroll taxes that are earmarked for social security expenditure are included in employer social security contributions (refer to Table 4.7).


Page 127

App

endi

x ta

ble

4.5.

7: O

ECD

-10

soci

al s

ecur

ity c

ontr

ibut

ions

(SSC

) C

ount

ry

Empl

oyee

SSC

Em

ploy

er S

SC

Self-

empl

oyed

SSC

Au

stra

lia

No

soci

al s

ecur

ity c

ontri

butio

ns le

vied

.

Can

ada

Empl

oym

ent i

nsur

ance

— C

$729

per

wee

k.

Can

ada

Pens

ion

Plan

(CPP

) — 4

.95

per c

ent o

f inc

ome

up to

a m

axim

um

of C

$1,9

10.7

0 fo

r inc

ome

abov

e C

$3,5

00.

CPP

— 4

.95

per c

ent f

or e

arni

ngs

abov

e C

$3,5

00 u

p to

a

max

imum

of C

$1,9

10.7

0.

Pay

roll

taxe

s le

vied

in s

ome

juris

dict

ions

. Ont

ario

levy

1.

95 p

er c

ent t

o Em

ploy

er H

ealth

Tax

if p

ayro

ll ex

ceed

s C

$400

,000

. Em

ploy

ers

also

con

tribu

te to

pro

vinc

ial w

orke

rs’

com

pens

atio

n pl

an. R

ates

var

y fo

r exa

mpl

e in

Ont

ario

em

ploy

ers

in C

to K

indu

stry

pay

an

aver

age

of

2.61

per

cen

t.

The

self

empl

oyed

con

tribu

te

to C

PP a

t rat

e of

9.9

per

cen

t.

Irela

nd

Soci

al in

sura

nce

is le

vied

on

all e

arne

d in

com

e by

em

ploy

ed a

nd

self-

empl

oyed

per

sons

. Em

ploy

ees

pay

4 pe

r cen

t soc

ial i

nsur

ance

be

twee

n ce

rtain

inco

mes

bet

wee

n €6

,604

and

€46

,600

. A

heal

th le

vy is

cha

rged

at 2

per

cen

t on

all i

ncom

e.

Empl

oyer

con

tribu

tions

are

pay

able

as

a pe

rcen

tage

of

gros

s em

ploy

ee e

arni

ngs

less

allo

wab

le s

uper

annu

atio

n co

ntrib

utio

ns d

iffer

ent c

ateg

orie

s. T

he to

tal r

ate

is

10.7

5 pe

r cen

t on

all e

mpl

oym

ent i

ncom

e (n

o ce

iling)

.

Self-

empl

oyed

per

sons

pay

3

per c

ent s

ocia

l ins

uran

ce

on a

ll in

com

e. A

hea

lth le

vy

cont

ribut

ion

of 2

per

cen

t is

also

pay

able

on

all i

ncom

e by

all

pers

ons

who

se a

nnua

l in

com

e is

at l

east

€18

,512

.

Japa

n Pe

nsio

n: 7

.144

per

cen

t of t

otal

rem

uner

atio

n, u

p to

the

insu

rabl

e ce

iling

of

¥620

,000

mon

thly

and

¥1,

500,

000

for a

one

off

paym

ent.

The

prem

ium

rate

fo

r the

em

ploy

ee’s

pen

sion

is ra

ised

by

0.35

4 pe

r cen

t eve

ry y

ear f

rom

O

ctob

er 2

004,

reac

hing

a m

axim

um o

f 18.

30 p

er c

ent i

n 20

17 o

nwar

d.

Sick

ness

: 4.1

per

cen

t of t

otal

rem

uner

atio

n, u

p to

insu

rabl

e ce

iling

of

¥980

,000

(mon

thly

). U

nem

ploy

men

t: 0.

8 pe

r cen

t of g

ross

rem

uner

atio

n.

Wor

kmen

’s a

ccid

ent c

ompe

nsat

ion

insu

ranc

e: 0

.45

per c

ent o

f gro

ss y

early

re

mun

erat

ion.

Pu

blic

nur

sing

car

e: 0

.615

per

cen

t of m

onth

ly re

mun

erat

ion

and

bonu

s fo

r em

ploy

er a

nd e

mpl

oyee

age

d ov

er 4

0 up

to a

max

imum

of ¥

6,02

7 (n

ote

the

prem

ium

rate

of 0

.615

per

cen

t app

lied

from

1 M

ay 2

006)

.

Pens

ion:

7.1

44 p

er c

ent o

f tot

al re

mun

erat

ion,

up

to th

e in

sura

ble

ceili

ng o

f ¥62

0,00

0 (m

onth

ly) a

nd ¥

1,50

0,00

0 fo

r a

one

off p

aym

ent.

Sick

ness

: 4.1

per

cen

t of t

otal

rem

uner

atio

n, u

p to

insu

rabl

e ce

iling

of ¥

980,

000

(mon

thly

). U

nem

ploy

men

t: 1.

15 p

er c

ent o

f gro

ss re

mun

erat

ion.

W

orkm

en’s

acc

iden

t com

pens

atio

n in

sura

nce:

0.4

5 pe

r cen

t of

gro

ss y

early

rem

uner

atio

n.

Publ

ic n

ursi

ng c

are:

0.6

15 p

er c

ent o

f mon

thly

rem

uner

atio

n an

d bo

nus

for e

mpl

oyer

and

em

ploy

ee a

ged

over

40

up to

a

max

imum

of ¥

6,02

7 (n

ote

the

prem

ium

rate

of 0

.615

per

cen

t ap

plie

d fro

m 1

May

200

6).

Nat

iona

l pen

sion

is ¥

13,8

60

per m

onth

. The

mon

thly

pr

emiu

m is

rais

ed b

y ¥2

80

ever

y ye

ar fr

om A

pril

2005

an

d w

ill be

fixe

d at

¥16

,900

in

201

7 an

d on

war

d.

Page 128


App

endi

x ta

ble

4.5.

7: O

ECD

-10

soci

al s

ecur

ity c

ontr

ibut

ions

(SSC

) (co

ntin

ued)

C

ount

ry

Empl

oyee

SSC

Em

ploy

er S

SC

Self-

empl

oyed

SSC

N

ethe

rland

s Ta

x an

d na

tiona

l soc

ial s

ecur

ity c

ontri

butio

ns a

re le

vied

as

an a

ggre

gate

am

ount

. C

ontri

butio

ns a

re:

• O

ld A

ge P

ensi

on: 1

7.9

per c

ent o

f firs

t and

sec

ond

tax

brac

kets

(Box

1).

Indi

vidu

als

65 a

nd o

ver a

re e

xem

pt.

• W

idow

s an

d or

phan

s pe

nsio

n: 1

.25

per c

ent o

f firs

t and

sec

ond

tax

brac

kets

(Box

1).

• Ex

cept

iona

l Med

ical

exp

ense

s an

d di

sabi

lity:

12.

55 p

er c

ent o

f firs

t and

se

cond

tax

brac

kets

(Box

1).

• Al

so le

vies

une

mpl

oym

ent a

nd p

ublic

insu

ranc

e fo

r med

ical

car

e so

cial

se

curit

y co

ntrib

utio

ns.

Net

herla

nds

levi

es e

mpl

oyer

soc

ial s

ecur

ity c

ontri

butio

ns

for t

he g

ener

al u

nem

ploy

men

t fun

d, u

nem

ploy

men

t fun

d fo

r in

dust

rial i

nsur

ance

ass

ocia

tions

, inv

alid

ity, p

ublic

insu

ranc

e fo

r med

ical

car

e.

New

Zea

land

N

o so

cial

sec

urity

con

tribu

tions

are

levi

ed.

Spai

n G

ener

al c

ontri

butio

n sy

stem

has

a m

inim

um a

nd m

axim

um c

ontri

butio

n ba

se

that

is a

djus

ted

annu

ally

. For

200

6 th

e m

axim

um m

onth

ly b

ase

is €

2,89

7.70

. Em

ploy

ed p

erso

ns

Gen

eral

risk

s —

4.7

per

cen

t U

nem

ploy

men

t ins

uran

ce —

1.6

per

cen

t Pr

ofes

sion

al tr

aini

ng —

0.1

per

cen

t

Gen

eral

risk

s —

23.

6 pe

r cen

t U

nem

ploy

men

t — 6

.0 p

er c

ent

Wag

es fu

nd —

0.4

per

cen

t Pr

ofes

sion

al tr

aini

ng —

0.6

per

cen

t Em

ploy

ers

mus

t pay

a w

ork

acci

dent

insu

ranc

e w

hich

va

ries

depe

ndin

g on

job

type

, for

exa

mpl

e 0.

99 p

er c

ent

for o

ffice

wor

k, 1

3.5

per c

ent f

or a

irlin

es.

The

self-

empl

oyed

taxp

ayer

s’

effe

ctiv

e ra

te is

29.

8 pe

r cen

t.

Switz

erla

nd

The

empl

oyer

with

hold

s em

ploy

ee’s

con

tribu

tion.

O

ld a

ge a

nd s

urvi

vor i

nsur

ance

— 4

.20

per c

ent

Dis

abili

ty in

sura

nce

— 0

.7 p

er c

ent

Mili

tary

com

pens

atio

n —

0.1

5 pe

r cen

t U

nem

ploy

men

t ins

uran

ce —

1 p

er c

ent h

owev

er, n

o co

ntrib

utio

n is

levi

ed

on in

com

e in

exc

ess

of C

HF1

06,8

00.

Hea

lth in

sura

nce

is m

anda

tory

; how

ever

, it i

s th

e re

spon

sibi

lity

of th

e in

divi

dual

. N

on-a

ccid

ent i

nsur

ance

pre

miu

ms

are

paid

by

the

empl

oyee

s an

d va

ry

betw

een

1 pe

r cen

t and

4 p

er c

ent.

Empl

oyee

s w

ith a

nnua

l wag

es a

bove

CH

F19,

350

are

also

sub

ject

to

a co

mpa

ny’s

pen

sion

sch

eme.

Con

tribu

tions

and

insu

red

sala

ry v

ary

depe

ndin

g on

the

pens

ion

sche

me.

Old

age

and

sur

vivo

r ins

uran

ce —

4.2

0 pe

r cen

t D

isab

ility

insu

ranc

e —

0.7

per

cen

t M

ilita

ry c

ompe

nsat

ion

— 0

.15

per c

ent

Une

mpl

oym

ent i

nsur

ance

— 1

per

cen

t how

ever

, no

cont

ribut

ion

is le

vied

on

inco

me

in e

xces

s of

CH

F 10

6,80

0.

Old

age

and

sur

vivo

r in

sura

nce

— 7

.8 p

er c

ent

Dis

abili

ty in

sura

nce

—

1.4

per c

ent

Mili

tary

com

pens

atio

n —

0.

3 pe

r cen

t Lo

wer

rate

s ap

ply

for

self-

empl

oyed

per

sons

with

gr

oss

inco

me

betw

een

CH

F7,8

00 a

nd 5

0,70

0.

Page 129


Page 129

App

endi

x ta

ble

4.5.

7: O

ECD

-10

soci

al s

ecur

ity c

ontr

ibut

ions

(SSC

) (co

ntin

ued)

C

ount

ry

Empl

oyee

SSC

Em

ploy

er S

SC

Self-

empl

oyed

SSC

U

nite

d Ki

ngdo

m

Nat

iona

l Ins

uran

ce c

ontri

butio

ns —

11

per c

ent f

or e

arni

ngs

betw

een

£94

and

£630

and

1 p

er c

ent o

n al

l ear

ning

s ab

ove

£630

. Red

uctio

ns to

9.

4 pe

r cen

t ava

ilabl

e if

the

empl

oyee

s pa

rtici

pate

s in

an

empl

oyer

-spo

nsor

ed p

ensi

on s

chem

e or

a p

erso

nal p

ensi

on p

lan,

whi

ch

cont

ract

the

empl

oyee

out

of t

he S

tate

Ear

ning

s R

elat

ed P

ensi

on S

chem

e (S

ERPS

).

Empl

oyer

s’ c

ontri

butio

ns o

f 12.

8 pe

r cen

t for

ear

ning

s ab

ove

£94

per w

eek.

For

em

ploy

ees

who

are

con

tract

ed o

ut th

ere

is a

reba

te o

f 3.5

per

cen

t on

earn

ings

bet

wee

n £8

2 an

d £6

30 p

er w

eek.

Self-

empl

oyed

per

sons

co

ntrib

ute

at fl

at ra

te o

f £2

.10

per w

eek.

The

re is

a

smal

l ear

ning

s ex

empt

ion

limit

of £

4,34

5.

Uni

ted

Stat

es

Two

soci

al s

ecur

ity ta

xes

are

impo

sed

by th

e na

tiona

l gov

ernm

ent:

the

old

age,

sur

vivo

rs a

nd d

isab

ility

insu

ranc

e ta

x (O

ASD

I) an

d th

e ho

spita

l in

sura

nce

tax

(Med

icar

e). T

he ta

x is

impo

sed

in e

qual

per

cent

ages

on

the

empl

oyer

and

em

ploy

ee.

OAS

DI:

6.2

per c

ent i

mpo

sed

on w

ages

up

to a

max

imum

of U

S$94

,200

in

200

6.

Med

icar

e: 1

.45

per c

ent o

n em

ploy

ee’s

wag

es.

OAS

DI:

6.2

per c

ent i

mpo

sed

on e

arni

ngs

up to

US

$94,

200

in 2

006.

M

edic

are:

1.4

5 pe

r cen

t on

all e

mpl

oyee

s’ w

ages

. U

nem

ploy

men

t Tax

: 6.2

per

cen

t on

earn

ings

up

to

US$

7,00

0. E

mpl

oyer

s w

ho p

ay th

e st

ate

unem

ploy

men

t tax

, on

a ti

mel

y ba

sis,

rece

ive

an o

ffset

cre

dit o

f up

to

5.4

per c

ent.

Self-

empl

oyed

taxp

ayer

s ar

e re

spon

sibl

e fo

r pay

ing

both

th

e em

ploy

ee a

nd e

mpl

oyer

O

ASD

I and

Med

icar

e co

ntrib

utio

ns.

Sour

ce: v

ario

us, s

ee C

hapt

er 1

(1.4

.1).


Page 130

APPENDIX 4.6: WAGE AND SALARY TAXATION DATA

Appendix table 4.6.1: Gross wage earnings in national currency and in US dollars for an average worker

CountryGross wage earnings in US dollars

using purchasing power paritiesAustralia 51,169 36,851Austria 33,624 36,934Belgium 36,396 41,101Canada 40,341 31,297Czech Republic 221,886 15,229Denmark 328,390 38,454Finland 32,722 35,035France 30,219 33,619Germany 41,074 44,086Greece 18,339 25,808Hungary 1,778,552 13,681Iceland 2,949,759 32,113Ireland 31,663 31,056Italy 22,759 27,060Japan 4,953,747 38,235Korea 28,729,826 37,702Luxembourg 40,500 40,984Mexico 79,997 10,688Netherlands 37,759 41,560New Zealand 40,949 27,274Norway 379,934 38,509Poland 30,000 16,232Portugal 13,299 20,148Slovak Republic 216,780 12,478Spain 20,701 26,451Sweden 309,854 33,154Switzerland 71,595 40,694Turkey 15,256 18,609United Kingdom 28,571 46,091United States 31,666 31,666

Gross wage earningsin national currency


Page 131

Appendix table 4.6.2: Top marginal tax rate and threshold Combined top

marginal tax rate(a)All-in top

marginal rateThreshold multiple

(average production wage)Slovak Republic 2.9 19.0 0.5Hungary 56.0 69.5 0.8Ireland 42.0 48.0 0.9Denmark 55.0 63.0 1.0Luxembourg 33.9 47.9 1.0Belgium 45.1 59.3 1.1Mexico 22.5 32.1 1.2United Kingdom 40.0 41.0 1.3Australia (2004-05) 48.5 48.5 1.4Germany 44.3 44.3 1.4Netherlands 52.0 52.0 1.4Iceland 40.2 40.2 1.4New Zealand 39.0 39.0 1.5Greece 33.6 49.6 1.5Sweden 56.6 56.6 1.5Finland 49.9 56.5 1.9Czech Republic 28.0 40.5 1.9Austria 42.7 42.7 2.1Norway 43.5 51.3 2.1Australia (2006-07 on) 48.5 48.5 2.2Turkey 26.1 41.1 2.3Spain 45.0 45.0 2.6France 36.5 48.6 2.7Canada 46.4 46.4 2.9Poland 26.2 51.8 3.1Switzerland 37.8 47.9 3.6Korea 35.6 38.2 3.6Japan 47.1 47.9 4.5Portugal 35.6 46.6 4.6Italy 44.1 44.1 4.8United States 41.3 42.7 10.6Unweighted average 39.9 46.7 2.4Weighted average 41.4 44.5 5.6 Source: OECD Tax database (preliminary data) and Australian Treasury estimates. (a) Combined top marginal tax rate includes the national government and sub-national government (top marginal) rate, calculated as the additional national and sub-national government personal income tax resulting from a unit increase in gross wage earnings. The combined rate takes account of the effects of tax credits, the deductibility of sub-central taxes in central government taxes etc.

Documents

06 Chapter 4 - Department of the Treasurycomparativetaxation.treasury.gov.au/.../downloads/06_Chapter_4.pdf · Chapter 4: Wage and salary taxation Page 61 Chart 4.3: Components of