Israel’s Tax Wedge Climbs in 2016

Oddly enough for a country that thinks of itself as encouraging citizens to marry and have families, Israel’s tax wedge isn’t particularly favorable to them

Israel’s tax wedge isn’t particularly favorable to families.
AP

Israel’s tax wedge grew more sharply last year than that of any other member-state of the Organization for Economic Cooperation and Development, bar Greece, but Israeli wage earners and their employers still remained among those in the OECD with the lowest rates.

The OECD’s “Taxing Wages 2017” report found that Israel’s tax wedge – the total taxes on labor income paid by employees and employers, minus family benefits received, as a percentage of the labor costs of the employer – was just 22.1% in 2016, the fifth-lowest among 36 countries included in the survey. 

But Israel’s rate rose 0.57 percentage points last year, the second highest after Greece, whose rate increase was 1.06 points. Among all the OECD countries, the average tax wedge rate was 36%, down 0.07 points from 2015, the report said.

Income tax rates accounted for just 9.4% of labor costs, quite a bit under the 13.4% average of the 36 countries.

However, the figures showed that while Israeli employees were in about the middle of the range for social security contributions (in Israel’s case National Insurance Institute contributions), Israeli employers kicked in relatively little compared with their peers in other OECD countries: Employees contributed 7.3% of labor costs while employers added just 5.3%. All told that added up to a miserly 12.6% when in more than half the countries it was more than 20%.

Oddly enough for a country that thinks of itself as encouraging citizens to marry and have families, Israel’s tax wedge isn’t particularly favorable to them. The gap between the tax wedge for a single person with no children and families with two was just 2.7%. In France it was 8.1 points and in Germany and Belgium 15.4.