Labor costs are lower than the average for developed economies

The OECD has once again ruled out “fiscal hell” in Spain. This Thursday, the organization published its annual report on the tax burden borne by salaries in developed economies and pointed out that labor costs in our country are lower than average. In fact, the total cost of employing a person is, in comparable figures, 2.35% cheaper than OECD economies as a whole.

Not “hell”. Nor “plundering.” Not “stealing”. Nor, despite the insistence of some neoliberal economists in recent weeks. According to the OECD, the “tax wage” – as it is called, the sum of personal income tax and social contributions – owed to workers and companies in our country was on average 40.2% in 2023, which was significantly lower than Belgium, Germany, Austria. France or Italy.

According to the same calculations the average personal income tax rate (income tax) in Spain is 12%, while it is 13.3% in all countries of the Organization, including 35.8% in Denmark.

Personal income tax is a tax that taxes the personal income of all taxpayers. It also includes income from work (salaries, pensions or unemployment benefits), from economic activities (for example self-employment income) and income from capital (rent, financial assets or capital gains).

IRPR is a progressive tax. That is, it is a tribute whose type depends on the thing acquired. And recently this information published by revealed that nine out of ten taxpayers in our country pay less than 22% of their income in IRPF (Personal Income Tax).

For companies, these taxes, social contributions paid for social security and salaries constitute labor costs. Of each employee’s gross salary, companies allocate 4.9% – according to the OECD – to social contributions (contributions that give the right to retirement, unemployment or maternity or paternity benefits) borne by the employee and the corresponding personal income tax quota. holds on. Similarly, companies pay a high proportion of social contributions to their spending, 23.3% – again in line with the international organization – as reported here.

personal income tax collection records

On the one hand, it is true that, last year, personal income tax collections reached a record collection of 120.22 billion euros, increasing by almost 10% from 2022. The effective rate paid for personal income tax has increased by between one and two points in five years, due to some revisions to the rates of the highest brackets in both ordinary income and savings income. However, the increase in collections is mainly explained by the creation of jobs and wage growth and the emergence of the underground economy. In fact, this dynamics of activity has put upward pressure on the average effective rate.

Of course, some adjustments such as the adaptation to not ‘eat’ the reform of the SMI (Interprofessional Minimum Wage) “had a cost of 1,726 million (which the State stopped collecting)”, as confirmed by Tax just a few days ago Agency was done. On the other hand, rate changes “to mitigate inflationary losses (known as reducing personal income tax)” and cuts introduced by some autonomous communities cost 1,677 million euros. It should be remembered that personal income tax collection is distributed between the central administration and regional administrations.

For their part, those who decry a “fiscal hell” for workers object to the inclusion of Social Security contributions in personal income taxes. The latter are not taxes. And only part of it is supported by the employee’s salary, the rest is paid by the company (most of it). This amount is labor cost, but it is not salary.

Contributions are used to finance unemployment benefits, sick leave (including maternity leave), paternity leave or pensions. Some economists define them as “deferred wages”, because they eventually become income for workers. For example, in 2020, the Bank of Spain calculated that the pension system would “provide benefits of more than one euro for every euro of contributions for most individuals (…)”. On average, “people registered (in the pension system) in 2017 will receive benefits of 1.74 euros for every euro of contributions.”


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