Canadian income tax burdens are below the average among Organisation for Economic Co-operation and Development countries, but far from the lowest, according to the 2006 edition of the OECD’s Taxing Wages report.
Belgium, Germany and Hungary impose the highest taxes among OECD countries on the pay of a single person on average earnings while Korea, Mexico and New Zealand take the least, according to the report. Belgium takes 55.4%, compared with just 17.3% for Korea. Canada is in the middle of the pack at 31.6%, and below the average of 37.3%.
For a single-earner married couple with two children on average earnings, Turkey, Sweden and Poland impose the biggest “tax wedge”, while Ireland, Iceland and the United States take the smallest slice in tax. Turkey comes in at 42.7%, whereas Ireland takes a mere 8.1%. Canada comes in at 21.5%, below the 27.7% average.
The OECD compares the shares of employee earnings taken by governments through taxation by calculating what it calls the “tax wedge”, the difference between labour costs to the employer and the net take-home pay of the employee, including any cash benefits from government welfare programmes.
These tax wedges result from the combined effects of a range of policy instruments at the disposal of governments: personal income tax, employee and employer social security contributions, payroll taxes and cash benefits. Variations in their levels reflect the differing priorities of governments and voters in different countries with respect to the desired level, composition and financing method of government expenses, including social benefits, the OECD report explains.
“Tax wedges have shrunk over the past few years in most OECD countries, partly reflecting governments’ desire to get more people into work so as to offset the effects on output and prosperity of aging populations,” it notes. “However, these tax cuts have been limited by the need to maintain sufficient government revenues. In 2000, the average tax wedge for single persons without children was 37.9%, with Belgium at the top end of the range, with 57.1%, and Korea and Mexico at the bottom end, with 16.4% and 16.8% respectively.
“Some countries have focused their tax-wedge reductions on lower paid workers, as this is the group that often experiences particularly high unemployment rates,” it adds, pointing out that the reductions in the tax wedge for single workers earning two-thirds of the average wage have fallen particularly sharply since 2000 in France (41.4% from 47.4%), Hungary (42.9% from 48.5%) and the Slovak Republic (35.3% from 40.6%). In Canada, the rate for these workers is down marginally to 27% in 3005 from 27.8% in 2000.
Canadian income taxes among the middle of the pack: OECD report
Belgium, Germany and Hungary impose the highest taxes; Korea, Mexico and New Zealand the lowest
- By: James Langton
- March 29, 2006 March 29, 2006
- 12:11