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Ireland has the lowest Tax Wedge in Europe

Posted on May 15, 2013 by Micheál Collins

The tax wedge measures the difference between the total labour costs to the employer (wages + employers PRSI) and the corresponding net take-home pay for an employee (gross wages - all income taxes and PRSI). It is generally reported as a percentage of total labour costs.


The latest OECD figures for the tax wedge have just been published as part of 'Taxing Wages 2013'. Looking at the result for the average single worker without children across the OECD, the report shows that Ireland has the lowest tax wedge in Europe (EU); and the seventh lowest among the 34 OECD member states included in the report. Using data for 2012, the Irish tax wedge equals 25.9% of total labour costs almost 10% below the OECD average of 35.6%. The components of the Irish tax wedge are income taxes (13.4%) + employee PRSI (2.9%) + employer PRSI (9.7%).


Compared to the average OECD position, Ireland's income tax take is about equivalent but social insurance contributions for both employees and employers are below average.


The latest OECD Taxing Wages report is here.


For more on Taxation and taxation policy in Ireland see my chapter on 'Taxation' in the 'Economy of Ireland' textbook (ed by O'Hagan and Newman, Gill and MacMillan) - details here.

Posted in: Labour costsTaxation

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