Three EU countries at the bottom of global tax freedom index

A new study by French think tank Institut Molinari and the U.S. Tholos Foundation looks at “The Tax Burden on Global Workers”, compiling an index of tax freedom days across the world.

By relying on EY, inserting into their systems how much a certain gross salary delivers in ultimate net pay to a worker in every country surveyed, the comparison delivers a real life-comparison for those keen to know how much they will keep from their gross salary.

For the 13th time already, this exercise is undertaken and the study this year compromises 34 countries, representing 58.2% of the global economy.

The authors, James Rogers and Nicolas Marques, explain:

“This study aims to create an “apples to apples” comparison of tax rates, with data that reflect the reality experienced by real, working people around the world. Finally, it serves as a reference to the true cost of hiring employees in each country and to the real purchasing power of their employees.”

At the very bottom of the tax freedom ranking this year, are again three EU member states: France, Belgium and Austria. The authors note:

“France regains its title as the “world champion” of taxation after Austria moves to protect salaries”, specifying that “Austrian workers’ tax brackets were indexed to inflation in 2023, protecting salaries from “bracket creep” as they rise. This minor change put Austria into a second‐place tie with Belgium, where nothing changed; workers in these two countries celebrated their Tax Liberation Day (TLD) on July 15 th. No such relief came for workers in France, where workers are once again the last to celebrate, on July 17 th.”

On the upside, there is Finland:

“The only other country whose workers gained significantly this year is Finland, where a number of measures were enacted to provide temporary relief. Chief among these are deductions workers can claim against high electricity costs, and also to offset increased expenses for commuting between their homes and workplaces (similar to initiatives in Ireland last year). Finns’ TLD advanced from June 14 th in 2022 to June 5th in 2023.”

Furthermore, the authors take a closer look at the four European countries with a flat tax:

“The number whose governments have “flat tax” policies remains at 4. Although the purported “flat” rates are attractively low (10% in Bulgaria, 15% in Hungary, 16% in Romania, and 20% in Estonia), these countries’ social security contributions make real tax rates for workers higher than in progressive tax systems; in 2023, real tax rates in flat‐tax countries rose 0.12%, while falling 0.07% in progressive systems.

Flat tax regimes impose a fixed rate on income tax, but not other taxes: Social security rates in flat tax countries are, on average, higher than in progressive states; social contributions comprise 77% of payroll taxes collected in flat tax countries, versus 66.3% in progressive systems.”

The authors also include a number of warnings:

“In 2020 alone, borrowing by governments in the OECD – which includes 27 of the 34 countries surveyed here – increased by 70%, primarily in response to the COVID‐19 pandemic. Fortunately, most of this money was borrowed at historically low interest rates. Still, it must eventually be repaid by taxpayers.

Post‐pandemic, inflation rates have skyrocketed around the globe, putting additional pressure on national, regional, and municipal budgets. Higher interest rates, meant to combat inflation, further increase the cost of government by making it more expensive to borrow. (…)

For taxpaying workers, demographics remain a cause for concern: In 10 of the 34 countries studied, more than 20% of the population is now over age 653 – a demographic reality that every country studied here, with the exception of South Africa, is expected to face by 2050.

Aging populations prefigure higher pension and health care expenditures, as there will be fewer young workers to pay for future retirees’ benefits. Currently, only 217 million (48.1%) of the EU’s 450 million citizens are in the labour force 4; the figures are similar in the United States (48.5%) and Japan (55.5%)”