Taxing Wages and the OECD Average

Last year we queried how it was that the OECD placed Ireland in the “low tax” group for it measure of the net personal income tax rate (income tax plus employee social insurance contributions) on an employee earning the average wage.

As the previous post highlighted it was because the OECD used an average wage that was too low.  As a result of this, when the OECD published their Taxing Wages 2019 update the average wage used for Ireland was changed.

In Taxing Wages 2018, the average wage used for Ireland for 2016 was €35,430.  In Taxing Wages 2019, this is now €44,720 (with the average estimated to have risen to €46,675 by 2018).  The previous post explains why the revised figure is more appropriate (in line with other countries supervisory and management workers are now included and part-time workers are excluded).

The post suggested that using a more appropriate figure would likely put Ireland close to the OECD average for the tax rate on the average wage.  So what is the outcome?

What country is that pretty much matching the OECD average? Yes, Ireland. The group of countries with tax rates using this measure of less than 20 per cent has been reduced by one.

This year’s Taxing Wages also included a nice chapter on median earnings.  Here are charts of the marginal and average tax rates on median earnings.

These show Ireland to have the third-highest marginal tax rate on median wages but the tenth lowest (of 36) average tax rate on median wages.

And to conclude here two charts of the tax rates (personal income tax plus employee social insurance contributions) at 67 percent and 167 per cent of the average wage (These are estimated to be €31,300 and €78,000 for Ireland in 2018).

Thus we can conclude that, relative to the other OECD countries, the latest OECD data indicate that Ireland has below average tax rates on below average wages, average tax rates on average wages and above average tax rates on above average wages.