Tax burden on salaries rose to 41.8% in 2021, higher than OECD average

  • Lusa
  • 24 May 2022

Last year, Portugal was 10th of the 38 member countries of the Organisation for Economic Cooperation and Development (OECD) with the highest tax burden on the average worker.

The tax burden on labour income in Portugal rose 0.3 percentage points to 41.8% in 2021 compared to 2020, in contrast to the fall of 0.06 percentage points to 34.6% of the OECD average, a report indicates on Tuesday.

According to the ‘Taxing Wages 2022’ report from the Organisation for Economic Cooperation and Development (OECD), in 2021 Portugal was 10th (11th in 2020) of the 38 member countries of the organisation with the highest tax burden (personal income tax and social security contributions paid by the employee and the employer) on the average worker, in a list led by Belgium (52.6%), Germany (48.1%) and Austria (47.8%) and where Colombia, with a tax burden of 0.0%, occupies the last position.

The increase recorded in Portugal occurs at the opposite direction of the slight decrease of 0.06 percentage points recorded in the average tax burden of the OECD countries, which resulted from “significant decreases in a small number of countries”, in particular the Czech Republic (-4.12 percentage points), Greece (-2.23 percentage points), Latvia (-1.73 percentage points) and Australia (-1.25 percentage points).

Between 2020 and 2021, the tax burden on labour costs increased in 24 OECD countries, decreased in 12 countries and remained at the same level for the average single worker in Colombia and Costa Rica.

According to the report, “while the tax burden for each family type has decreased on average across the OECD over the past year, it has increased in many countries” as a result of the withdrawal of pandemic-related supports.

“The tax burden saw sharp falls across the OECD in 2020, due to measures implemented in response to Covid-19. However, it rose again in most countries in 2021 as many of these measures were withdrawn, average wages increased (in all but two countries) and new reforms were introduced in labour taxation,” the OECD says.

“Overall,” it adds, “changes in the tax burden between 2019 and 2021 were consistent with long-term trends before the pandemic.

According to OECD data, considering a family with two children, with one of the members of the couple earning the average salary, Portugal had in 2021 the 13th highest tax burden in the OECD: 30.9%, which compares with the average of 24.6% of the organisation’s countries and the 14th position occupied in 2020.

Noting that “tax benefits and provisions related to children tend to reduce the tax burden for workers with children, compared to the average single worker”, the OECD states that last year in Portugal this reduction was 11 percentage points, higher than the OECD average of 10 percentage points.

Considering a longer period, between 2000 and 2021, the tax burden on the average single worker increased by 4.5 percentage points in Portugal, from 37.3% to 41.8%, while in the OECD it decreased by 1.6 percentage points, from 36.2% to 34.6%.

“Between 2009 and 2021, the tax burden for the average single worker increased by 5.3 percentage points in Portugal,” the OECD reports, adding that, “during this same period, the tax burden for the average single worker across the OECD increased slowly, to 35.3% in 2013 and 2014, before decreasing again to 34.6% in 2021.”

As for families with two children and two salaries (one corresponding to the national average and the other representing 67% of this) the tax burden on labour income was 37.2% in Portugal, up 0.45 percentage points on 2020, a figure that compares with an OECD average of 28.8% in 2020.