dg mutual

Countries With High Tax Rates

Mar 12, 2014

Tax rates in the UK have been a political hot potato for years. We still complain about it today, but it was so much worse under the Wilson government when they introduced the 95% super tax.  Regardless of which political party is in power, we still think of ourselves as highly taxed. But is it actually true?

The main thing to remember is that while tax rates in Europe tend to be high, along with higher social security contributions, benefits tend to be more generous than other parts of the world. Mexico’s tax rate of 9.5% isn’t going to fund much infrastructure or benefits.

The accounting firm PWC has crunched some numbers in relation to the G20 countries.  Their calculations are based on an individual earning $400,000 (£240,000) with a mortgage of $1.2m (£750,000). They made deductions for tax and social security contributions. In most countries the pay left would be between $230,000 and $280,000. At the bottom of the table is Italy where the % of take home pay is around 50% and at the top Saudi Arabia where its 96.86%.

Of course this doesn’t tell the whole story.

Where higher level tax rates kick in is also an important factor. In the UK, the 45% threshold is £151,000. In Italy, the 43% threshold is half of that! But neither can hold a candle to Denmark. It’s not in the G20 but it taxes workers at 60% on all earnings over $60,000. Elsewhere the Chilean government only takes 7%.

Of course focusing just on the top rate of tax doesn’t give you the whole picture. What tax rates apply to people on average salaries for their country? Single people with no children on an average salary are taxed at the 42.8% rate in Belgium. In the UK the figure is 24.9% and in New Zealand 16.40%. The figure for the USA is 22.7%.

But what impact do children have? Across the OECD tax rates drop about 5.5% on average. In Germany, the rate drops from 39.9% to 21.3% because of generous child tax credits.  Tax stays above 30% in Belgium, Austria and Denmark. Interestingly, Greece is the only country where you pay more tax if you have children!