from 25 April 2024 has revealed that the post-tax income of single workers (who earn the average wage) has declined in 21 out of 38 OECD countries, with tax rates on labour incomes having gone up in a majority of countries.

“The increase in labour taxation was primarily driven by increases in personal income tax,” the report explains. “While real wages declined in 18 OECD countries, nominal wages increased in 37 out of 38 OECD countries, as inflation remained above historic levels.”

In Luxembourg, because of the wage indexation system, the phenomenon is even more marked as is illustrated in the “tax wedge.” The tax wedge is the ratio between the amount of tax paid by an average salaried worker without children (a single person earning 100% of the average wage) and the total labour cost that person represents for their employer. The average tax wedge, says the OECD, makes it possible to assess the extent to which taxes on earned income act as a disincentive to employment. This indicator is measured as a percentage of labour costs.

For single workers without children, the tax wedge rose from 39.9% in 2022 to 41.3% in 2023. According to the report, this increase is reflected in a shift to higher tax brackets: “in the absence of automatic indexation of tax systems in many OECD countries, high inflation tends to increase workers’ tax liabilities by pushing them into higher tax brackets and erodes the value of the tax reliefs and cash benefits they receive.”

For married couples with two children, meanwhile, Luxembourg has a much lower tax wedge, at 21.4% (against an OECD average of 25.7%). This reduction for families with children is due to cash benefits and tax breaks that target such households.

The detailed analysis also shows that, despite these advantages for families, single workers in Luxembourg bear a heavier tax burden compared with the OECD average. In 2023, the average net tax rate on earned income for these workers was 33.2%, well above the OECD average of 24.9%. In absolute terms, this means that, after tax and social benefits, a single worker in Luxembourg retains only 66.8% of their gross salary, compared with 75.1% for the OECD average.

This article in Paperjam. It has been translated and edited for Delano.