The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
The following commentary on the changes in tax burdens and marginal tax rates between 2016 and 2017 focuses on two of the eight family-types – single employees, without children, at the average wage (column 2 of the tables) and one-earner married families, with two children, at the average wage (column 5). Comparisons with the columns 1, 3-4 and 6-8 of the tables give corresponding results for the six other family-types. Generally, only those changes exceeding 1 percentage point for average effective rates and 5 percentage points for marginal effective rates are flagged in this chapter. Most of these are due to tax reforms or changes in the tax systems. Further detailed information on the countries’ tax systems is given in the Part III of the Report that is entitled “Country details, 2017”.
Table 5.1 presents the total tax wedge (described as income tax plus employee and employer’s social security contributions less cash benefits) by family-type as a percentage of total labour costs (gross wage plus employers’ social security contributions [including payroll taxes]). In the majority of countries, changes in the gap between total labour costs and the corresponding net take-home pay in 2017 as compared with 2016 were within plus or minus one percentage point.
Comparing column 2 in Table 3.1Table 5.1, the OECD average tax wedge decreased by 0.1 percentage point from 36.0% to 35.9% for a single average worker between 2016 and 2017. It fell by more than one percentage point in Finland (1.2 percentage points), Hungary (2.0 percentage points) and Luxembourg (1.8 percentage points). In Finland, there was an overall increase in tax reliefs as well as a reduction in the bottom and top tax bracket rates within the income tax schedule in 2017. During the same year, in Hungary, the employer social security contribution rate declined from 27% to 22%. Finally, in Luxembourg, the decrease in the tax wedge for the average worker resulted from a reformed income tax schedule (i.e. extended income brackets and lower tax rates) and wage-earner tax credit (i.e. changing from a flat to an increasing tax credit up to an income threshold and then decreases). In contrast, there were no increases in the tax wedge of more than one percentage point for the single average worker across the OECD member countries.
For one-earner married couples (comparing column 5 of Table 3.1Table 5.1) the OECD average tax wedge remained at 26.1% between 2016 and 2017, although changes of more than one percentage point were observed in six countries: Australia, Finland, Hungary, Ireland, Latvia and Poland, . The tax wedge increased by more than one percentage point only in Australia (2.7 percentage points) as the Family Tax Benefit Part A payments decreased and the Schoolkids’ Bonus was abolished from July 2016, Ireland (2.6 percentage points) as the Family Income Supplement was not paid to the one-earner couple on average wage in 2017 as the household exceeded the income threshold, and Latvia (1.1 percentage points) as the general basic tax allowance decreased while the child benefit basic amounts for two children were unchanged between the two years. In contrast, the tax wedge decreased by more than one percentage point in Finland (1.2 percentage points) for reasons stated in the precious paragraph, Hungary (3.0 percentage points) due to the combined effect of the decrease in the employer social security contribution rate and an increased tax allowance for dependent children, and Poland (4.4 percentage points) as the basic amount of the Family 500 Plus Program increased in 2017.
Table 5.2 shows the combined burden of income tax and employee social security contributions in the form of personal average tax rates as a percentage of gross wage earnings. For single persons on average earnings, it decreased by more than one percentage point between 2016 and 2017 only in Luxembourg (1.9 percentage points). There were no increases of more than one percentage point in the personal average tax rates for single average workers or for one-earner married couples with two children. In contrast, it decreased by more than one percentage point in Hungary (1.1 percentage points) and in Luxembourg (1.3 percentage points) for the one-earner married couples with two children.
Table 5.3 provides the combined burden of income tax and employee social security contributions less the amount of cash benefits as a percentage of gross wage earnings. This is the measure of the net personal average tax rate. Comparing column 2 of Table 3.3Table 5.3, for single persons on average earnings, there was a change of more than one percentage point between 2016 and 2017 in Luxembourg (-1.9 percentage points) only. Comparing column 5 of Table 3.3Table 5.3, increases in the net personal average tax rate of one-earner married couples exceeding one percentage point occurred in Australia (2.9 percentage points), the Czech Republic (1.1 percentage points), Ireland (2.9 percentage points) and Latvia (1.3 percentage points). It decreased by more than one percentage point only in Poland (5.1 percentage points).
Table 5.4 presents information on income tax due as a percentage of gross wage earnings. Comparing column 2 of Table 3.4Table 5.4, in most OECD member countries, the average income tax rates for single persons on average earnings changed only slightly between 2016 and 2017 and the OECD average income tax rate remained at 15.7%. The average income tax rate did not increase by more than one percentage point in any OECD member countries. In contrast, it decreased by more than one percentage point in Finland (1.1 percentage points) and in Luxembourg (1.5 percentage points). Comparing column 5 of Table 3.4Table 5.4, the OECD average income tax rate for the one-earner married couples with two children, which was 10.1% in 2016, increased by 0.1 percentage point in 2017. As observed for the single workers, there were no increases of more than one percentage point across the OECD member countries for the one-earner married couples with two children. However, the average income tax rates decreased by more than one percentage point in Finland and Hungary (both 1.1 percentage points).
Table 5.5 shows information on employee social security contributions as a percentage of gross wage earnings. Comparing columns 2 and 5 of Table 3.5Table 5.5, there were no changes of more than one percentage point across the OECD member countries between 2016 and 2017 for either of these family types. The OECD average employee social security contribution rate remained unchanged at 9.8% for the single average workers and one-earner married couples with two children during that period.
Table 5.6 shows the marginal tax wedge (rate of income tax plus employee and employer social security contributions and payroll taxes where applicable minus cash benefits) as percentage of total labour costs, when the gross earnings of the principal earner rise by 1 currency unit in 2016. Comparing columns 2 and 5 respectively in Table 3.6Table 5.6, changes between 2016 and 2017 in the marginal tax wedge were generally within the range of plus or minus 5 percentage points. There were changes of more than 5 percentage points in three OECD countries: Iceland (-5.1 percentage points for the one-earner married couple with two children), the Netherlands (+5.7 percentage points for the one-earner married couple with two children) and Norway (-8.3 percentage points for the two family types). In the latter country, the Central Government income tax rate applied on ordinary income decreased from 10.55% to 9.55% during that period.
Table 5.7 presents the marginal rate of income tax plus employee social security contributions minus cash benefits (the net personal marginal tax rate) by family-type and wage level, when the gross earnings of the principal earner rise by 1 currency unit in 2016. Comparing columns 2 and 5 respectively in Table 3.7Table 5.7, the pattern of changes between 2016 and 2017 in the net personal marginal tax rates were similar to that for the marginal tax wedge discussed above. Changes outside the range of plus or minus 5 percentage points were in Iceland (-5.2 percentage points for the one-earner married couple with two children), the Netherlands (+6.3 percentage points for the one-earner married couple with two children) and Norway (-9.3 percentage points for the two family types).
Table 5.8 shows the percentage increase in net income relative to the percentage increase in gross wages when the latter increases by 1 currency unit.1 Table 5.9 provides the percentage increase in net income relative to the percentage increase in labour costs (i.e. gross wage earnings plus employer social security contributions and payroll taxes) when the latter rises by 1 currency unit.2 The results shown in these two tables are directly dependent upon the marginal and average tax rates that have been discussed in the paragraphs above. Tables 5.10 and 5.11 report background information on levels of labour costs plus gross and net wages in 2016.
