It’s a simple rule: If you want to pay less tax, don’t move to Belgium. Or Germany.
The two countries once again finished in first and second place in the annual Organization for Economic Cooperation and Development report on tax burdens. In 2017, the average unmarried German worker with no children paid 39.9 percent in personal income tax and social security contributions after any state benefits, just 0.6 percent behind their Belgian counterpart. Denmark followed in third place, with the lowest of the OECD’s 35 members being Chile on 7 percent.
The US and UK finished in mid-table with 26 and 23.4 percent respectively, while other standout figures were Sweden at 25 percent, Switzerland at 16.9 and Italy with 31.2. The average across the OECD, an organization comprising the wealthiest countries in the world, was 25.5 percent.
Germany fared better when the tax rate for couples was compared. The country was in seventh place at 21.7 percent for one-earner married couples with two children. But when both spouses worked, Germany rose to second place after Denmark.
The OECD made another useful calculation that it calls the tax wedge. This is the percentage of income tax paid on an employees’ gross salary plus the social security contributions paid by the employer, a useful measure to compare labor costs. Here again, Belgium was first with 53.7 percent and Germany was second with 49.7 percent for a single worker.
“If no tax relief package can be adopted in this financial situation, it will probably never happen”
The figures are likely to spur further calls from Germany’s business community for the new coalition government to cut taxes, a movement that gained steam following the huge business tax cuts last year in the United States. France is also looking to cut the burden.
“Germany simply cannot afford to fall behind in the future competition with other industrialized countries like the US and France,” said Eric Schweitzer, head of the German Chambers of Commerce and Industry, in a recent interview with the Rheinische Post newspaper.
Christian Lindner, the leader of the pro-business Free Democratic Party, is on their side. He said the government had adopted “kleptomaniac features” in its tax policies. It was “completely incomprehensible” that the coalition was unwilling to relieve the tax burden on the broad mass of people in Germany, he added.
Mr. Lindner told Handelsblatt that the government should begin by ending the so-called solidarity surcharge, adopted in 1991 to help pay for German reunification following the fall of the Berlin Wall. It amounts to 5.5 percent of a person’s income tax bill. He noted that the government has a substantial fiscal surplus of about €70 billion ($84 billion) a year and thus the surcharge is no longer needed. “If no tax relief package can be adopted in this financial situation, it will probably never happen,” he said.
The senior coalition partner, Angela Merkel’s Christian Democrats, had talked up tax cuts of €15 billion in the lead up to last year’s election. But the party was subsequently forced into a coalition with the left-leaning Social Democrats, who are keen to invest in infrastructure projects rather than cut taxes.
In fact, not only is the government now not considering tax cuts, but there are plans afoot to increase social security contributions from both workers and employers to pay for new benefits, including a special mother’s pension and a new basic pension.
It could be that in next year’s OECD report, Belgium is knocked off the top spot.