The worst of both worlds: loss of purchasing power and more taxes to pay. Something that had not happened for more than twenty years.
With inflation that has skyrocketed in Western countries to the highest levels in three decades, households have seen their purchasing power diminish, because the wage increases they achieved in 2022 were insufficient to stop wage depreciation.
At the same time, the increase in remunerations has translated into an increase in the tax burden, since, by not deflating the personal income tax, some taxpayers went to another bracket of income tax, as well as increased the contributions to be paid by companies .
This is the picture that the OECD (Organization for Economic Cooperation and Development) has drawn today in its report Taxing Wages 2023. With an illuminating subtitle: "Real wages down, taxes on work up: inflation attests to workers a double whammy".
"Effective tax rates on earned income increased across the OECD in 2022 at the same time as high inflation caused real wages to fall. The tax wedge [the difference between the cost of labor paid by companies and what the worker actually receives] for the eight types of households included in this Report increased in most OECD countries between 2021 and 2022, with the largest increases observed in households with children, especially at levels lower income," the report explains.
According to OECD calculations, inflation not only distorts the purchasing power of workers who are unable to fully recover the depreciation of their wages, but also tax systems that do not adapt to the new context (the so-called personal income tax deflation) end up harming to the disposable income of households, which end up paying more to the Treasury, when in real terms they have less to spend.
In detail, the study focuses on the cross-country comparison of the tax wedge - defined as the sum of labor taxes paid by employees and employers minus family benefits - expressed as a percentage of the employer's labor cost.
On average across the OECD, the tax wedge for a single parent earning 67% of the median wage increased by 1.6 percentage points between 2021 and 2022, to 16.6%, the largest annual increase in the median tax wedge since 2,000 for any of the eight types of households covered by the report. In the case of a single-parent couple with a median salary and two children, the median tax wedge of 25.6% in 2022 reflected an increase of 1.1 percentage points from the previous year, the largest increase for this type of household since 2000 .
As regards Spain, salaries registered a contraction of 5.3% in real terms in 2022, that is, when purchasing power hit the negative impact of inflation, which represents the ninth largest drop among the 38 countries of the OECD.
In the case of a working couple with two children, between paying taxes, Social Security contributions withheld 36.6% of their total income, the eighth highest percentage among OECD countries.
Another striking fact is that if the average gross salary in the OECD reached 47,211 euros, Spain, with 42,529 euros, ranked 22nd, a figure that is 10% lower than the OECD average. In other words, even with inflation, Spanish salaries continue to be, in comparative terms, lower.
