Tax wedge in Croatia, Austria, Hungary, Poland and Greece
MARIN ONORATO, mag. math*
Preliminary communication** JEL: H21, H24, J38 doi: 10.3326/fintp.40.2.5
* The author would like to thank two anonymous referees for their useful comments and suggestions. This article belongs to a special issue of Financial Theory and Practice, which is devoted to the comparison of tax wedge on labour income in Croatia and other EU countries. The articles in this issue have arisen from the students’ research project, undertaken in 2015. The Preface to the special issue (Urban, 2016) outlines the motivation behind the research project, explains the most important methodological issues, and reviews the literature on the measurement of tax wedge in Croatia. ** Received: January 31, 2016 Accepted: March 31, 2016
Marin ONORATO e-mail: [email protected] - - VERAGE WAGE A METHODOLOGY Introduction 2.1 (OECD, 2014) is the methodology Wages Taxing of the basic concepts One of the on based calculated is AGW The country. specific a in (AGW) wage gross average hypothetical define to used is AGW economy. general for not data, sector-specific tion model, which allows the computation of the amounts of taxes, contributions, tion model, which allows the computation units in the five countries. and social benefits for hypothetical family The key aim of this paper is to compare the average tax burdens in the five ob- served countries for eight hypothetical family units defined in OECD (2014). In incomes, personal higher earning burden of units tax the into insight order to gain – sin- units of hypothetical on two sets performed are analyses detailed additional wide a relatively – which are allocated gle workers and couples with two children range of gross wages. some basic information 2 introduces follows. Section as The paper is structured labour the of overview detailed a offers 3 Section used. methodology the about the net countries and tax burden calculations; system in the observed taxation across a wide with children wedge for single workers and couples tax average range of gross in section 4, which is followed by the conclu wages is compared sion section. 2 This paper investigates the tax burden on labour income in EU countries, looking in EU countries, income the tax burden on labour This paper investigates a detailed The paper offers Poland and Greece. Austria, Hungary, into Croatia, income personal in those countries: components labour taxation of the account social insurance contributions (SICs), employer and employee and taxes (PITs), the paper presents calculations of several Additionally, tax social family benefits. for methodology, Wages Taxing the with accordance in defined indicators, burden microsimula author’s by using the were calculated indicators The country. each Abstract in Croatia, income on labour tax burden the to compare paper is of this The aim methodology Wages in 2013. The Taxing Hungary and Poland Austria, Greece, to wages in order of gross a range units across to hypothetical has been applied as well as other relevant average tax rate, tax wedge, net net average calculate the smallest tax children, single workers without When it comes to indicators. - Croa was found in wage gross average the earning less than for workers wedge tia, while Poland had the smallest tax wedge for above-average wages. Due to a 50% reaches a single worker in Croatia system, the tax wedge for PIT progressive at 400% of the average gross wage, equalling that of Austria, Greece and Hun- show a similar trend. for couples with two children wedges Tax gary. tax, social average tax rate, personal income tax wedge, tax burden, Keywords: Poland, Greece Austria, Hungary, Croatia, insurance contributions, 1
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 266 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
267 40 (2) 265-288 (2016)
– – – – 1/3 x 100 2/3 x 100 1/3 x 100 Spouse II AGW 12,303 41,693 9,618 9,880 20,604 unemployed (% of AGW) (in EUR) 100 100 100 100 100 Spouse I 2/3 x 100 5/3 x 100 2/3 x 100 (% of AGW) 1 1 Exchange rate 0 0 0 2 2 2 2 0 PLN/EUR = 4.1945 HRK/EUR = 7.5735 HUF/EUR = 303.0270 Number of children expressed in expressed Adults Couple Couple Couple Couple PLN 41,442 EUR 41,693 EUR 20,604 HRK 93,180 UNITS Single worker Single worker Single worker Single worker HUF 2,914,514 national currency AGW 2 1 HYPOTHETICAL able able Croatia Austria Hungary Poland Greece Designation A-67-NC A-100-NC A-167-NC A-67-2C 2A-100/0-2C 2A-100/33-2C 2A-100/67-2C 2A-100/33-NC The first three hypothetical units (A-67-NC, A-100-NC, A-167-NC) constitute of 5/3 or 100%, 2/3, equals whose gross wage children without workers single whose gross A-67-2C represents a single worker with two children Unit AGW. with families units represent three following The AGW. 66.7% of wage equals Spouse I’s with 2A-100/67-2C), 2A-100/33-2C, (2A-100/0-2C, children two wage amounting to, re- and Spouse II’s AGW to 100% of gross wage amounting Note: The symbols stand for the following: AGW – average gross wage; A – adult; NC – no – adult; NC – no A wage; AGW – average gross Note: The symbols stand for the following: 2C – 2 children. children; (2014). OECD Source: Characteristics of observed hypothetical unit types Characteristics of observed hypothetical T 2.2 or two adults one comprise are calculated indicators units for which Hypothetical of all The composition or with two children. without children either (couple), 2. eight hypothetical units is shown in table Notes: In calculation of yearly gross wage for Austria, 14 monthly wages are taken into consid- into taken are wages monthly 14 Austria, for wage gross yearly of calculation In Notes: and leave bonuses practice that employers pay Christmas bonuses eration, since it is common wages. equal to average monthly calculation as per AGW (1) CBS – Source: (2015) author’s for and Croatia: Urban (2016); for other countries: OECD (2014); (2) Exchange rates – for middle Croatia: HRK/EUR exchange and Poland: OECD (2014). rate (CNB, 2016); for Hungary T 2013 in selected countries, wage gross Annual average units, where adult workers are allocated gross wages equal to a percentage of gross workers where adult units, percentage equal to a wages are allocated research. in this were used that amounts AGW 2013 1 shows Table AGW. - (1) (2) (3) Total labour cost Total = gross wage + employer SICs + payroll taxes Total net tax Total government = personal income taxes at all levels of + employee SICs + employer SICs + payroll taxes – cash family benefits Net tax paid by the employee government = personal income taxes at all levels of + employee SICs – cash family benefits. S R EN INDICATO BURD TAX 2.3 tax wedge and net are used in this paper: average main tax burden indicators Two average tax rate. Net average tax wedge is defined as the ratio of total net tax to by the rate represents the ratio of net tax paid tax costs. Net average labour total employee to gross wage. by the employee, labour costs, total net taxes, and net taxes paid total calculate To formulas (1), (2), and (3) are used. spectively, 0, 1/3, and 2/3 of AGW. The final hypothetical unit comprises a couple a comprises unit hypothetical final The AGW. of 2/3 and 1/3, 0, spectively, to amounting wage gross I’s Spouse with (2A-100/33-NC), children without The minimum AGW. of to 1/3 wage amounting and Spouse II’s AGW 100% of in 2013 exceeded Wage on Minimum by the Regulation stipulated wage in Croatia in order to this has been disregarded gross wage; however, average 33% of the the OECD model. comply with eight OECD two units in addition to the abovementioned This paper introduces of 500% 50 and between earning children without workers single units: typical various where the author takes into account and couples with two children, AGW be- thus being gross earning total family’s wages, the of spouses’ combinations see figure 2). (as an example, AGW of and 500% AGW tween 100% of In addition to the two key indicators, further two were used in the analysis: aver further two were used in the In addition to the two key indicators, to gross SIC rate (ratio of wage) and average employee (ratio of PIT rate age PIT employee SICs to gross wage). pay- those only SICs include employer and employee that note to important is It funds are to other paid contributions while government, general the to made ments
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 268 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
269 40 (2) 265-288 (2016) - - – – 1.7 0.5 15.2 13.0 EUR 3,486 1,743 1,743 2,440 3,486 4,880 6,623 1,046 3,486 mployer rate Employer pillar are general are general pillar (% of gross wage) (% of gross st Annual amount – – – 5.0 20.0 15.0 HRK 26,400 13,200 13,200 18,480 26,400 36,960 50,160 7,920 26,400 Employee rate (% of gross wage) (% of gross pillar contributions are paid to mandatory pri- mandatory to paid are contributions pillar nd . Employee SICs paid into the 1 paid into SICs . Employee nd pillar pension insurance contributions (Order on SIC pillar pension insurance Base st and the 2 and st on i taxat labour 4 3 asic components of labour taxation in Croatia labour Basic components of pillar pension insurance contributions IA CROAT pillar pension insurance contributions ew OF ew overvi nd st able able Total Employment contributions Work injury contributions Work 1 Health insurance contributions 2 Contribution Personal tax allowance Basic personal allowance Adult dependent First child Second child Third child Fourth child Fifth child Partial disability allowance disability allowance Total Amounts for 2013). No such maximum base amount has been defined for other contributions. 3 vate pension funds. Thus, the former plays a role in the tax burden calculation and burden calculation a role in the tax Thus, the former plays funds. vate pension (2016), see Urban about this topic, For more information does not. the latter 2015). (2012), OECD (2014, Trošelj Blažić and Source: Personal Income Tax Act. Income Tax Personal Source: tions and personal allowances. Personal tax allowance is the sum of the basic Personal tax allowance tions and personal allowances. family members (table 4). personal allowance and allowance for dependent Personal tax allowance (Croatia, 2013) Personal tax allowance (Croatia, T The PIT base equals the taxpayer’s gross wage minus pension insurance contribu minus pension insurance gross wage base equals the taxpayer’s The PIT Source: Social Insurance Contributions Act. Social Insurance Contributions Source: tions – their 2013 rates are shown in table 3. The maximum SIC base, EUR 74,790, EUR SIC base, maximum The 3. table shown in are 2013 rates their – tions 1 is stipulated for the T 2013) SIC rates (Croatia, Croatian employers and employees pay five different social insurance contribu 3.1 not included in the analysis. For instance, the Croatian pension system rests on rests system pension Croatian the For instance, analysis. the in included not the 1 – two pillars 3.1.1 government revenue, while the 2 the while revenue, government - 12 25 40 ax rate (%) T 474 395 316 (EUR) Benefit amount per child Benefit amount per 6 5 ax burden indicators T ax band (in EUR) ax band (in able able [0, 3,486] ‹3,486, 13,943] ‹13,943, +∞› ross personal income per family member family member income per personal Gross (EUR) [0, 875] T ‹875, 1,765] ‹1,765, 2,635] Detailed calculations for the eight hypothetical units in Croatia are shown in ta- are units in Croatia for the eight hypothetical calculations Detailed The net 7 shows tax burden indicators. Table A3 in the annex. A2 and A1, bles (A-67-2C) is 12 percent parent with two children tax wedge of a single average Source: Child Benefits Act. Child Benefits Source: 3.1.2 T 2013) (Croatia, Child benefits: annual bands and amounts age points lower that the tax wedge of a single worker earning the same wage (A-67-NC), as a consequence of the child benefits the former is entitled to. Simi- between units 2A-100/33-2C (cou- difference there is a 5-percentage-point larly, due to the children), without and 2A-100/33-NC (couple ple with two children) right to claim child allowance. former unit’s Local government surtax is a tax calculated as a percentage of the PIT amount. Its amount. PIT the of percentage a as calculated tax a is surtax government Local between were set at rates These and municipalities. by cities determined are rates the analysis, this of purpose the For 2013. in Zagreb) of City the (for 18% and 0% the represents, approximately, surtax rate was set at 12%, which government local cities Croatian all basis of the on calculated rate surtax government local average and municipalities. this benefits, family cash to comes it When Croatia. in levied not are taxes Payroll fam- for benefit means-tested a is which benefits, child account into takes analysis ilies with children paid by the central government. Child benefit amounts depend on personal income per family member. Table 6 shows how child benefitscalculated are for a family with one or two children. The benefitschildren of a single parent increase by 15%. received by the Source: Personal Income Tax Act. Personal Income Tax Source: Table 5 shows the range and rates of the three PIT bands in 2013. bands three PIT rates of the range and the 5 shows Table T 2013) (Croatia, bands and rates PIT
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 270 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
271 40 (2) 265-288 (2016)
500
450
32.95 400 22.76 20.00 7.76
33-NC 2A-100/
350
300
29.20 250 18.44 20.00 3.44 67-2C
2A-100/
220
200
27.76 190 16.78 20.00 1.78 33-2C
2A-100/
180 170
0-2C
22.16 10.33 20.00 0.47
2A-100/ 160
150 2C 140
A-67- 18.52 6.13 20.00 0.00
130 120
NC
39.38 110 30.17 20.00 15.17 A-167-
100 NC 95
35.19 25.34 20.00 10.34
A-100-
90 85
NC
A-67- 75 30.59 20.04 20.00 5.04 70
outline net average tax wedge and net average tax rate trends for rate tax average wedge and net tax average net outline
65
60 55
1 7 50 able igure Net average tax wedge Net average tax rate Average employee Average SIC rate Average PIT rate PIT Average Source: Author’s calculation. Author’s Source: F tax rate for single workers without Net average tax wedge and net average 2013), in % (Croatia, children Source: Author’s calculations. Author’s Source: Figures 1 and 2 two children with couples and workers sets of single hypothetical additional across a wide range of gross wages. The figures clearly show that the Croatian the average tax rate grows system is progressive, i.e. that as the wage taxation ob- the workers in for single wedge tax average net The increases. gross wage with couples to comes it When 51%. to 29% from increases range wage served up to 42% for couples with gross wages two children the tax wedge increases 22%, is observed tax wedge, The smallest AGW. of to 300% and 200% amounting see that One can AGW. with gross wages of 100% and 0% of couples in married the next family (with 100% and 33% of the tax wedge sharply rises to 28% for child benefits. AGW), due to them not being eligible for T in % 2013), units (Croatia, for basic hypothetical indicators burden Tax
– 3.70 3.00 12.55 1.40 0.50 0.55 SICs Employer (% of gross wage) (% of gross – – (a) 0.50 (b) 3.95 10.25 0.50 Austria Employee SICs (% of gross wage) (% of gross
2 8 asic components of labour taxation in taxation Basic components of labour AUSTRIA able igure Health insurance Unemployment insurance Pension insurance Accident insurance Contribution to the labour chamber Contribution for the promotion of residential building Contribution Bankruptcy insurance - residen of promotion the for contributions or chamber labour the to contributions no (b) 1,497; leave bonus. levied on allowances such as Christmas and tial building are (2014). OECD Source: Notes (OECD): (a) employees’ unemployment insurance rate depends on the taxpayer’s monthly taxpayer’s the on depends rate insurance unemployment employees’ (a) (OECD): Notes wages lower than EUR 1,219, 1% for wages up to EUR earnings, making it 0% for monthly gross 1,330, 2% for monthly wages gross up to EUR 1,497, and 3% for all wages gross above EUR T SIC rates (Austria, 2013) Source: Author’s calculation. Author’s Source: 3.2 The maximum Austria. 8 shows and rates in social insurance contributions Table for the basic wage, while the ceiling SIC base amounts to EUR 52,800 annually for allowances is set at EUR 8,800. F children with two couples rate for tax and net average wedge tax Net average in % 2013), (Croatia, 3.2.1
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 272 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
273 40 (2) 265-288 (2016) - - 0
36.50 43.21 50.00 ax rate (%) T
10 9 Employee SICs and contributions levied on Christmas and leave bonuses: levied on Christmas and leave Employee SICs and contributions full amount EUR 60 Basic annual allowance: 220 per child if granted to one spouse only Child allowance: EUR if the tax relief is granted to both parents or EUR 132 per child allowance: EUR 620 Christmas and leave bonus Work-related allowance: EUR 132 allowance: Work-related ween 10 and 15 years old. A fixed benefit for two children amounts to EUR 4,897. EUR to amounts children two for benefit fixed A old. years 15 and 10 ween ax band (in EUR) able able (1) (2) (3) (4) (5) [0, 11,000] 25,000] ‹11,000, ‹25,000, 60,000] ‹60,000, +∞› T Payroll taxes in Austria are levied if the monthly gross wage exceeds EUR 1,095. Austria are levied Payroll taxes in amount contribution equalisation burden family the taxes: payroll two are There chil- of number the on depend which benefits child to entitled are taxpayers Austrian the children are assumed to be dren and their age. For the purposes of this paper, bet ited to EUR 110 above the initially calculated personal income tax. ited to EUR 110 to 3% of gross wage. amounting tax the community 4.5% of gross wage and ing to Following the calculation of the tax liability, some taxpayers may be eligible for may be eligible some taxpayers of the tax liability, Following the calculation 54 (EUR credit tax employee basic credit: tax of types three are There credits. tax and earner’s primary and year), (EUR 291 per credit tax commuting year), per sole parent’s tax credit (EUR 494 per year for the first child, EUR 175is lim tax credit The total child). second child, and EUR 220 for each subsequent for the Source: KPMG (2014). Source: T bands and rates (Austria, 2013) PIT Just like in Croatia, a progressive tax schedule is applied in Austria. Tax bands and Tax Austria. is applied in Just like in Croatia, a progressive tax schedule tax rates can be found in table 10. Source: OECD (2014). Source: PIT base reductions (Austria, 2013) base reductions PIT T A detailed account of tax reliefs applicable to the Austrian PIT system can be system PIT Austrian the to applicable of tax reliefs account detailed A 9. found in table As can be seen above, employee SICs depend on monthly gross wages and amount and amount wages gross on monthly SICs depend above, employee be seen As can bonus on Christmas contributions income, of gross and 18.2% 15.2% to between while of gross income, 14.2% and 17.2% amount to between bonus and leave for all gross wages. of gross income SICs amount to 21.7% employer
500
450
11.98 400 17.31 29.29 45.24
33-NC 2A-100/
350
300
13.53 250 18.06 24.54 41.56 67-2C
2A-100/
220
200 11.64 190 17.31 20.14 38.15 33-2C 2A-100/
180 170
0-2C
14.18 18.06 20.49 38.42
2A-100/ 160
150 2C 140
in Austria. Average PIT rate grows as grows rate PIT Average Austria. in
7.24 18.06 7.68 28.51 A-67-
130 120
NC
22.93 110 16.01 38.94 51.92 A-167-
100 NC 95
16.24 18.06 34.29 49.12
A-100-
90 85
NC
10.23 75 18.06 28.29 44.46 A-67-
70
65
60 55
3 11 50 ax burden indicators ax burden T able igure Average PIT rate PIT Average employee Average SIC rate Net average tax rate Net average tax wedge T (Austria, 2013), in % indicators for basic hypothetical units burden Tax 3.2.2 indicators burden tax the shows 11 Table worth not- is progressive. It is gross that PIT increases, meaning personal income workers the same – single comparisons are always subjects of such ing that the are proportional, The contributions two children. or couples with without children The tax regressive. become when the contributions higher wages, until we reach points percentage is 16 (A-67-2C) two children with parent single of a wedge same who earns the children tax wedge of a single worker without lower than the and cash of tax reliefs the impact of is a consequence wage (A-67-NC), which with children. benefits on families Source: Author’s calculation. Author’s Source: F tax rate for single workers without Net average tax wedge and net average (Austria, 2013), in % children Source: OECD (2014) and author’s calculations. OECD (2014) and author’s Source: and net average tax rate trends across Figures 3 and 4 show net average tax wedge single workers and sets of hypothetical a wide range of gross wages for additional ceiling the that show 3) (figure workers single for Data children. two with couples tax gross wage with the at 160% of average is reached calculation for contribution 50% towards decreases thus wedge tax the afterwards; decline to starting wedge figure 3. for the highest gross wages presented in
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 274 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
275 40 (2) 265-288 (2016) 18.43 3 6.03 27.46 SICs Employer (% of gross wage) (% of gross 9.22 3 4.28 16.50 Employee SICs (% of gross wage) (% of gross 4 12 asic components of labour taxation in Greece taxation Basic components of labour GREECE able igure Contribution Social insurance (IKA) Social insurance (ETEAM) Other insurance funds Total Note: IKA and ETEAM are social insurance management funds. and ETEAM are Note: IKA (2014). OECD Source: T 2013) SIC rates (Greece, 3.3 by both paid Greece, all in contributions insurance types of social three are There is rela- by employers payable rate The total 12). (table and employers employees annual SIC base is EUR 66,562. The maximum tively high: 27.46%. Source: Author’s calculation. Author’s Source: F units (Croatia, and net average tax rate for hypothetical Net average tax wedge 2013), in % Net average tax wedge for couples (figure 4) has intervals where thewedge incre one spouse earned by the wage when the same i.e. it remains “stagnant”, is spouse one where couples of wedge tax the in appears interval such first The ases. 0 and 50% of between wage is second spouse’s the while AGW, of earns 100% and wage is 140% whose gross with a couple starts second interval the AGW; observed range. to the end of the interval continues This AGW. 120% of 3.3.1 - - > 21,000, 22 32 42 x ax rate (in %) ax rate (in T 0 1 2 3 4 Solidarity contribution (in %) ≤ 21,000, the tax credit will be EUR 2,100. If 14 13 ax burden indicators T ax band (in EUR) ax band (in able able ross income minus SICs (in EUR) income Gross T [0, 25,000] ‹25,000, 42,000] ‹42,000, +∞› [0, 12,000] ‹12,000, 20,000] ‹20,000, 50,000› ‹50,000, 100,000› ‹100,000, +∞› the EUR 2,100 tax credit is reduced by EUR 100 for each EUR 1,000. Therefore, reduced by EUR 100 for each EUR 1,000. is the EUR 2,100 tax credit credit equals EUR 1,200. if the gross wage is EUR 30,000, the tax No payroll taxes are levied, and there are no cash family Therebenefits. is, how- ever, a unique feature which may be classified as a sortof standard gross wage by their increase shall employer the is married, employee cash benefit. If the For exam 5%. additional an by increased be will wage the child, 10%. For each children, their gross ple, if the employee is married and has two wage will increase by 20%. 3.3.2 parent The tax wedge of a single 15 shows in Greece. tax burden indicators Table worker with- (A-67-2C) is higher than the tax wedge of a single with two children for wedge tax the (A-67-NC). Similarly, wage same the earning children out - 2A-100/33-2C (couple with two children) exceeds 2A-100/33-NC (couple with Austria, in and Croatia in found one the to opposite result a is This children). out com- as children with units hypothetical imposed on is tax burden lower a where the reason for this is The wage. same the earning children to units without pared tion”, which is calculated as a percentage of the gross wage minus employee SICs. employee of the gross wage minus as a percentage is calculated which tion”, rates, see table 14. For solidarity contribution OECD (2014). Source: as follows: let x type in Greece, which is calculated There is only one tax credit be the gross wage. If x Solidarity contribution rates (Greece, 2013) Solidarity contribution rates (Greece, Another special tax has been introduced in Greece, called “solidarity contribu “solidarity called in Greece, tax has been introduced Another special T Source: OECD (2014). Source: Deductions for social insurance contributions are the only allowance recognized recognized allowance only the are contributions insurance for social Deductions table 13. shown in rates are bands and PIT base calculation. in PIT T 2013) (Greece, bands and rates PIT
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 276 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
277 40 (2) 265-288 (2016)
500
450
33-NC 400 40.6 24.29 16.5 7.79 2A-100/
350
300
42.52 250 26.74 16.5 10.24 67-2C
2A-100/
220
200
42 190 26.07 16.5 9.57 33-2C
2A-100/
180 170
0-2C
44.5 29.26 16.5 12.76
2A-100/ 160
150 2C 140
A-67- 38.65 21.81 16.5 5.31
130 120
NC
49.22 110 35.28 16.5 18.78 A-167-
100 NC 95
41.56 25.51 16.5 9.01
A-100-
90 85
NC
A-67- 75 36.91 19.58 16.5 3.08
70
65
60 55
5 15 50 able igure Net average tax wedge Net average tax rate Average employee employee Average SIC rate Average PIT rate PIT Average Source: Author’s calculation. Author’s Source: F tax rate for single workers without Net average tax wedge and net average 2013), in % (Greece, children An interesting development for couples (figure 6) is a mild regressive trend of the of trend regressive mild a is 6) (figure couples for development interesting An tendency decreasing show a which rate, tax average net and wedge tax average net with and couples AGW 100 and 0% of equalling gross wages when couples with are observed. AGW gross wages amounting to 100 and 50% Figures 5 and 6 show net average tax wedge and net average tax rate trends ap- rate tax average wedge and net tax average net Figures 5 and 6 show single of sets hypothetical additional for gross wages, of range wide a to plicable gross high relatively at wedge tax The two children. with couples workers and wage levels exceeds 55% for single workers (figure 5) but starts decreasing to- ceiling. is exceeded, due to the SIC base AGW wards 50% when 300% Source: OECD (2014) and author’s calculations. OECD (2014) and author’s Source: T 2013), in % units (Greece, for basic hypothetical indicators burden Tax special employer’s child allowance in Greece. This allowance is a component of component is a allowance This in Greece. allowance child employer’s special it is since analysis seen in this be cannot its effect that meaning gross wage, the wages. initial gross based on equivalent - 24.0 2.0 1.0 27.0 SICs Employer (% of gross wage) (% of gross 10.0 7.0 1.5 18.5 Employee SICs (% of gross wage) (% of gross 6 16 asic components of labour taxation in Hungary taxation Basic components of labour HUNGARY able igure Pension insurance Health insurance Unemployment insurance Total Contribution PIT can be reduced by claiming a child allowance of EUR 206 monthly per child. allowance a child can be reduced by claiming PIT There is no tax credit. universal and stands at 16%. rate is PIT Payroll taxes amount to 1.5% of gross wage. two children worker with for a single Cash transfers amount to EUR 98 per month and 88 EUR per month for a couple with two children. Source: OECD (2014). Source: ers, are levied in Hungary. Just like in Greece, employer SICs are relatively high SICs are relatively employer Just like in Greece, in Hungary. ers, are levied rates are shown in detail in table 16. The and total 27% of the gross wage. T 2013) SIC rates (Hungary, Source: Author’s calculation. Author’s Source: 3.4 employ and employees by payable contributions, insurance social of types Three F children with two couples rate for tax and net average wedge tax Net average in % 2013), (Greece, 3.4.1
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279 40 (2) 265-288 (2016)
500
450
49.03 400 34.50 18.50 16.00
33-NC 2A-100/
350
300
11.06 250 40.07 22.99 18.50 67-2C
2A-100/
220
200
20.11 190 37.83 18.50 9.82 33-2C
2A-100/
180 170
0-2C
34.10 15.31 18.50 7.77
2A-100/ 160
150 2C 140
A-67- 25.19 3.87 18.50 3.65
130 120
NC
49.03 110 34.50 18.50 16.00 A-167-
100 NC 95
49.03 34.50 18.50 16.00
A-100-
90 85
NC
A-67- 75 49.03 34.50 18.50 16.00
70
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7 17 50 ax burden indicators ax burden T able igure Net average tax wedge Net average tax rate Average employee employee Average SIC rate Average PIT rate PIT Average Source: Author’s calculation. Author’s Source: F tax rate for single workers without Net average tax wedge and net average 2013), in % (Hungary, children The analysis of the system shows that single workers without children are not are children workers without single system shows that analysis of the The rate and one tax credit, or cash transfers; only one PIT to any tax reliefs, entitled This makes the tax wedge and SIC rate is applied. SIC and employer employee ratio of paid taxes to gross wage equal for all gross by single work- wages earned ers without children (table 17 and figure 7). Therefore, the Hungarian tax system children. is proportional for single workers without Source: OECD (2014) and author’s calculations. OECD (2014) and author’s Source: T 2013), in % (Hungary, indicators for basic hypothetical units burden Tax 3.4.2 a single parent wedge of The tax shows 17 in Hungary. indicators tax burden Table of lower than that points as 24 percentage (A-67-2C) is as many with two children - If we com wage (A-67-NC). same the earning children worker without single a and 2A-100/33-NC (with two children) couples 2A-100/33-2C pare hypothetical the in Allowances points. percentage 11 of difference a find we children), (without PIT system and child benefits thus have a significant impact on the tax burden in Hungary. – 6.11 4.17 6.50 1.40 2.25 SICs Employer (% of gross wage) (% of gross 6.11 9.00 2.45 1.50 1.40 2.25 Employee SICs (% of gross wage) (% of gross ) a 8 18 asic components of labour taxation in Poland taxation Basic components of labour POLAND able igure Health insurance Sickness insurance Unemployment contribution Pension insurance (OPF) Pension insurance (ZUS II) Pension insurance (ZUS Contribution ZUS and ZUS II are pension fund management institutions. OPF is short for “open pension fund”. ZUS and ZUS II are T SIC rates (Poland, 2013) 3.5 the 18. However, table in shown are in Poland on SIC rates basic information The simple the fit not does contributions payable of calculation complicated relatively countries. For the calculation method,pattern applied in most of the other observed contribu- and unemployment contributions see OECD (2014). Pension insurance EUR 26,555. tions are levied on a maximum base of Source: Author’s calculation. Author’s Source: Net average tax wedge and net average tax rate for couples with two children two children for couples with net average tax rate tax wedge and Net average 2013), in % (Hungary, On the other hand, the system applied to couples with children is progressive, ow- is progressive, children with to couples applied system the hand, other On the ing to a personal allowance for dependent children and a universal child benefit (figure 8). F a 3.5.1 Source: OECD (2014). OECD Source:
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 280 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
281 40 (2) 265-288 (2016) - 34.74 23.79 17.83 5.96 33-NC 2A-100/ 18% ax rate T 3,538 + 32% 32.48 21.14 17.83 3.32 67-2C 2A-100/ 31.29 19.76 17.83 1.94 33-2C 2A-100/ 0-2C 29.82 18.04 17.83 0.22 2A-100/ 2C A-67- 29.63 17.83 17.83 0.00 NC 36.22 25.52 17.83 7.69 A-167- NC 35.56 24.75 17.83 6.92 A-100- NC A-67- 34.74 23.79 17.83 5.96 20 19 ax burden indicators T ax band in PLN able able Net average tax wedge Net average tax rate Average employee Average SIC rate Family type rate PIT Average [0, 20,390] ‹20,390, +∞› T - The Polish progressive taxation system is applied both to single workers and cou across tax wedge and tax rate variations net average however, ples with children; a wide range of gross wages are relatively small (figures 9 and 10). Source: OECD (2014) and author’s calculations. (2014) and author’s OECD Source: T in % indicators for basic hypothetical units (Poland, 2013), burden Tax 3.5.2 20 shows in Poland. It is noteworthy that the aver the tax burden indicators Table Source: OECD (2014). Source: PIT bands and rates (Poland, 2013) bands and rates (Poland, PIT shows slow upward trend as the low and rate is relatively a relatively age PIT single parent with two children (A- The tax wedge of a income grows. taxpayer’s children workers without of single that behind points 5 percentage 67-2C) falls 2A-100/33- couples hypothetical compare we (A-67-NC). If wage equal an earning difference the children), 2A-100/33-NC (without and 2C (with two children) amounts to 3.5 percentage points. T No payroll tax is levied and no cash family benefits are received. No payroll tax is levied PIT calculation in Poland is based on two tax rates and two tax bands (table 19). 19). bands (table rates and two tax is based on two tax in Poland calculation PIT The credit. of tax types use three can the taxpayer rate, tax the applied Having single 265 per year for a per year or EUR to EUR 133 amounts credit basic tax for each year is EUR 133 per for children credit tax The children. worker with EUR does not exceed by one parent received gross wage the annual if child, insurance is EUR 13,350. Health for the other parent 26,700, while the threshold entirely be claimed as tax credit. contributions can almost work-re the basic system: PIT in the Polish allowances different are two There to relief amounts the other while all workers, 318 for at EUR relief is capped lated a specific formula. is calculated using contributions and employee’s a part of the
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10 9 50 COMP igure igure Source: Author’s calculation. Author’s Source: 4 To 3. chapter in presented results of the analysis comparative a offers chapter This find outwhich country imposes the highest taxes on its taxpayers, we will again and single workers without couples with two children a look at hypothetical take children in order to compare the net average tax wedge. Source: Author’s calculation. Author’s Source: F tax rate for couples with two children Net average tax wedge and net average (Poland, 2013), in % F without workers for single tax rate average and net wedge tax Net average 2013), in % (Poland, children
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12 11 50 igure igure Source: Author’s calculation. Author’s Source: F (2013), in % two children Net average tax wedge for couples with The lowest tax wedge for single taxpayers earning less than 100% of AGW is AGW earning less than 100% of The lowest tax wedge for single taxpayers found in Croatia, followed by Poland and Greece (figure11). If we look tax wedge is Poland’s atAGW, the 100% of wage exceeds in which the gross interval and Austria’s Hungary’s, indicating convincingly the lowest, while the curves wedge tax Croatian The interval. this in “intertwined” wedge are tax Greece’s wages between 180% and 400% of curve rises steeply in the interval indicating as wages reach countries three of the aforementioned the level and meets AGW the highest amounts. Source: Author’s calculation. Author’s Source: F in % (2013), single workers wedge for tax Net average - - CONCLUSION tively low, it sharply increases to reach the same level as that of other countries reach the same level it sharply increases to low, tively (Austria, Hungary and Greece) for higher wages. The aim of this paper was to compare the average tax burden imposed on taxpayers was to compare the average tax burden The aim of this paper and Poland. OECD data and methodologyAustria, Greece, Hungary in Croatia, used to calculate indicators for publication were Wages Taxing presented in OECD’s indicators such Moreover, OECD. the by defined units family hypothetical eight the a wide range of gross number of other hypothetical units across were calculated for a mi- A tax burden at higher income levels. wages in order to gain an insight into the the by developed countries five all across units hypothetical for model crosimulation used for the above calculations. author specifically for this research was close and are all relatively geographically Even though the observed countries are systems are taxation income labour in the differences substantial EU members, unique features. For instance, Poland’s found. Each of the countries has its own complicated; is relatively contributions insurance social system for calculating Hungary has only one PIT rate; Greece lacks the usual child for each percentage gross wage by a certain the employee’s employers increase benefits: instead, child; there is no tax credit in Croatia, but taxpayers are entitled to child benefits (which are means-tested), etc. follow similar systems, some countries in the taxation In spite of the differences wage levels average tax wedge levels for different net patterns and have similar - com The with children). case of couples Austria in the Hungary and (for instance, the relative has shown that with and without children units parison of hypothetical among countries. differ amounts of tax reliefs and child benefits tax wedge for has the lowest net average Croatia that has also shown The analysis workers with for single wedge tax the wages, while lower workers with single both that noting is worth it However, Poland. in lowest is wages above-average which contributions insurance social pay additional taxpayers Polish and Croatian used in this under the methodology are not included in the tax burden calculations paper (see Urban, 2016). Croa- the on light brighter sheds a levels of income range wide a of analysis The wages is rela even though the tax wedge for low gross tian tax wedge pattern: Greece has the highest tax wedge for couples with two children at all wage levels wage at all two children with for couples tax wedge highest has the Greece (figure 12). Even though Hungary’s and Austria’s PIT systems are significantly across similar very are wedges tax countries’ two the that noticeable is it different, tax Poland’s and Croatia’s the analysed countries, Among levels. all gross wage is initially the tax wedge case for single workers, the lowest; as is the wedges are a at wedge tax Polish the exceeds Croatia in wedge tax the but Poland, in higher cor the that evident becomes it 11, and 12 figures comparing When point. certain with couples for those and workers single for curves wedge tax between relation tax different significantly that fact the to due is This substantially. differs children for families with children apply. reliefs and cash benefits 5
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 284 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
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- . [online] Available . Available [online] view-2014.pdf>. . Paris: OECD. 2014 Wages OECD, 2014. Taxing OECD, 2015. Non-tax compulsory payments as an additional burden on - la
4. 5. 6. 7. 8. RENCES REFE 1. 2. 3.
0 0 0 0 410 727 503 6.13 1,230 8,202 9,309 1,640 1,640 7,669 7,289 1,247 1,750 9,449 18.52 A-67-2C 0 333 3,110 3,117 1,025 3,076 2,777 7,587 4,101 4,101 3,486 6,186 9,303 30.17 39.38 OTHET ICAL HYP 20,505 12,919 13,295 23,623 A-167-NC 0 615 136 3,117 1,845 1,136 5,947 2,461 2,461 3,486 6,357 1,272 8,570 1,870 4,987 25.34 35.19 12,303 14,174 EIGHT THE A-100-NC 0 44 410 369 413 1,230 8,202 5,126 1,640 1,640 3,486 3,076 6,148 1,247 1,643 2,890 9,449 20.04 30.59 A-67-NC
pension pension st nd 3.1.1. Employee SICs 3.1.2. Personal allowance insurance pillar insurance pillar Paid into the 2 Paid into the 1 A1 IA NITS IN CROAT U Y
FOR IONS ULAT UTION CALC CONT RIB AND 2.2. 3.1. Tax base reductions Tax 3.1. 2.1. 3.2. PIT base 3.2. PIT Net average tax rate (= 9 / 1 x 100) (= 11 / 12 x 100) (= 11 Net average tax wedge Total employee taxes Total (= 2.1 + 5 – 6) Total employee and employer Total taxes (= 8 + 9) pension insurance pillar are not tax levies and are therefore not included in item 9. therefore not tax levies and are pension insurance pillar are 3. Personal income tax 1. Gross wage 2. Employee SICs 4. Local government surtax on PIT 5. Total personal income taxes Total 5. 6. Child benefits 7. Net wage 8. Employer SICs 9. able nd
10. 11. Total labour cost (= 1 + 8) Total 11. 12. 13. MIL FA Source: Author’s calculations. Author’s Source: Note: According to the Taxing Wages methodology (OECD, 2014), employee SICs paid into the Wages to the Taxing According Note: 2 Elements of tax burden indicator calculation: part 1 (Croatia, 2013) part 1 (Croatia, indicator calculation: of tax burden Elements ANNEX TAX T
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 286 financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece
287 40 (2) 265-288 (2016) 0 31 820 261 292 otal 2,460 3,281 3,281 2,174 2,493 2,752 5,245 16.78 27.76 T 11,155 14,436 16,404 12,831 18,899 0 0 0 0 0 0 205 615 820 820 623 615 A2 4,306 4,101 1,238 4,725 3,486 C 2A-100/33-2 0 31 615 261 292 A1 1,845 2,461 2,461 2,174 1,870 2,137 4,007 7,669 10,130 12,303 12,831 14,174 6 52 58 615 431 632 otal 1,845 2,461 2,461 1,870 1,271 3,141 10.33 22.16 9,412 T 11,872 12,303 10,417 14,174 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 A2 C 2A-0/100-2 6 52 58 615 431 632 A1 1,845 2,461 2,461 1,870 1,271 3,141 9,412 11,872 12,303 10,417 14,174
nd st
Employee SICs Personal allowance 3.1.1. 3.1.2. pension insurance pillar pension insurance pillar paid into the 2 paid into the 1 paid into the A2
3.1. Tax base reductions Tax 3.1. 2.2. 2.1. 3.2. PIT base 3.2. PIT Local government surtax on PIT (= 11 / 12 x 100) (= 11 Net average tax rate (= 9 / 1 x 100) Net average tax wedge Total personal income Total taxes Total employee taxes Total (= 2.1 + 5 – 6) Total employee and Total employer taxes (= 8 + 9) Total labour cost Total (= 1 + 8) 3. Personal income tax 1. Gross wage 2. Employee SICs 2. Employee 4. 5. 6. Child benefits 7. Net wage 8. Employer SICs 9. able
10. 11. 11. 12. 13. Note: (a) see the note under table A1; (b) A1 – Spouse I, A2 – – Spouse sum II, of “Total” val- ues for Spouse I and Spouse II. calculations. Author’s Source: T 2013) 2 (Croatia, part calculation: indicator burden of tax Elements 0 136 otal 2,630 6,972 6,357 2,460 1,136 3,281 1,272 3,281 2,493 3,732 6,225 22.76 32.95 T 11,851 10,253 16,404 18,899 0 0 0 0 0 0 615 820 820 623 615 A2 2,015 3,486 4,306 4,101 1,238 4,725 NC 2A-100/33- 0 615 136 A1 3,117 3,486 6,357 1,845 1,136 5,947 2,461 1,272 2,461 1,870 4,987 11,851 12,303 14,174 0 75 630 705 otal 3,117 1,025 5,250 3,075 4,101 4,101 3,780 6,897 18.44 29.20 T 11,155 15,256 20,505 15,699 23,623 0 0 44 410 369 413 A2 3,076 1,230 5,126 1,640 3,486 8,202 1,640 1,643 1,247 2,890 9,449 C 2A-100/67-2 0 31 615 261 292 A1 2,174 1,845 2,461 7,669 2,461 2,137 1,870 4,007 10,130 12,303 15,699 14,174
nd st
Employee SICs Personal allowance 3.1.1. 3.1.2. pension insurance pillar pension insurance pillar paid into the 2 paid into the 1 paid into the A3
3.2. PIT base 3.2. PIT 2.2. 3.1. Tax base reductions Tax 3.1. 2.1. Local government surtax on PIT Net average tax rate (= 9 / 1 x 100) (= 11 / 12 x 100) (= 11 Net average tax wedge Total personal income Total taxes Total employee taxes Total (= 2.1 + 5 – 6) Total employee and Total employer taxes (= 8 + 9) Total labour cost Total (= 1 + 8) 3. PIT 4. 1. Gross wage 5. 6. Child benefits 2. Employee SICs 2. Employee 7. Net wage 8. Employer SICs 9. able
10. 11. 11. 12. 13. Note: (a) see the note under table A1; (b) A1 – Spouse I, A2 – – Spouse sum II, of “Total” val- ues for Spouse I and Spouse II. calculations. Author’s Source: T 2013) 3 (Croatia, part calculation: indicator burden of tax Elements
financial theory and marin onorato practice tax wedge in croatia, austria, hungary, poland and greece 40 (2) 265-288 (2016) 288