Wage earners receive a double whammy: more taxes to pay and loss of purchasing power. The worst of both worlds. The OECD (Organisation for Economic Co-operation and Development) published a ruthless analysis yesterday in its study Taxing Wages 2023: “Real wages down, taxes on work up: inflation deals a double blow to workers “. A paradox that, according to this organization, had not been seen for more than twenty years.
With inflation soaring in Western countries to the highest levels in three decades, households have seen their purchasing power eroded, as wage rises won in 2022, many through tough negotiations, were insufficient to stop the depreciation that salaries had suffered.
In relation to Spain, in 2022 wages recorded a contraction of 5.3% in real terms, which is the ninth largest drop among the 38 OECD countries (where the decline was 3 .3% on average).
But, in addition, this salary revaluation was a poisoned gift, because in some cases the increase in remuneration has resulted in an increase in the tax burden for taxpayers who became subject to a higher section of the income tax and to lose some rights in tax credits or other types of economic benefits.
“Effective tax rates on labor income increased in 2022 at the same time that high inflation caused a decline in real wages. The tax gap increased in most OECD countries between 2021 and 2022, with the largest increases seen in households with children, particularly at the lowest income levels,†the report explains.
In detail, the study focuses on the comparison between countries of the fiscal wedge – defined as the sum of employment taxes paid by employees and employers minus family benefits received – expressed as a percentage of the employer’s labor cost.
On average across the OECD, the tax wedge for a single parent earning 67% of the median wage rose by 1.6 percentage points between 2021 and 2022 to 16.6%, the annual increase largest average tax wedge since 2000 for any of the eight types of households covered by the report.
In the case of a single-parent household with a single median wage and two children, the average tax wedge of 25.6% in 2022 reflected an increase of 1.1 percentage points over the previous year, the largest increase great for this type of home since 2000.
With reference to Spain, 39.5% of the gross salary of single and childless Spanish workers in 2022 was used to pay taxes and Social Security contributions, compared to an average “fiscal wedge” of 34.6% for in the OECD as a whole. Another example: in the case of a working couple with two children, between paying taxes and Social Security contributions, “the labor cost on the salary amounts to 36.6% of their total gross income, which represents the eighth highest percentage among OECD countries.
These figures weaken the recurrent argument in the political debate that the tax burden in Spain is still lower than in other Western countries and that, therefore, there would be room to raise it. These data rather indicate that Spain is in the middle of the table (behind the high burden of Belgium, Germany or France but ahead of the United Kingdom and the United States) and that it is particularly severe with households without children.
Another eye-catching fact is that if the average gross salary in the OECD reached 47,211 euros, Spain, with 42,529 euros, took 22nd place, with a figure that is 10% lower than the average.
That is to say that, even with inflation, Spanish salaries in nominal terms continue to be, in comparison, lower than in other Western countries. And that’s without counting the taxes to be paid.
