Report: Israel’s ‘Tax Wedge’ Among OECD Lowest

A bank employee counts shekel notes. (Reuters/Nir Elias/File Photo)

Far from its reputation as a high-tax country, OECD figures show that taxes on labor in Israel are close to the bottom of all the countries with the most advanced economies. An OECD analysis of member countries’ “tax wedge” – the difference between what employees take home in earnings and what it costs to employ them – placed Israel at 24th.

According to the report, the tax wedge for Israel was 22.1 percent, the fifth lowest of all countries considered in the study. Israel compares very favorably to most of Europe. The figures for countries like Belgium, Hungary, France and Italy surround the 50-percent level.

The lower the tax wedge, the more advantageous for employers to hire and pay people, according to the OECD. When a spouse and two children are factored into the analysis (with a single income source), the tax wedge falls slightly, to 19.4 percent of labor costs. The average among OECD countries in this parameter is 26.6 percent.

When state insurance benefits are added, Israeli labor costs remain low. In dollar terms, the total labor costs for a worker with National Insurance contributions from both employer and employee amounted to an average annual salary of $39,359 as the total cost of employment. Israel again ranked 24th out of the 36 OECD member states. Labor costs in most of Europe when taking this factor into account were also much higher, with total employment costs in Germany, Switzerland and Belgium exceeding $70,000.