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Data for private sector wages supports the tax-cut policy.
submited on 12.08.2006 in category Fiscal affairs
submited on 12.08.2006 in category Fiscal affairs
Those are some of the results from reduced tax rates on labor contracts. The reduction of social insurance burden by 6 percentage points effectively led to a decrease in tax burden of about 4 percentage points, measured by that part of labor cost which goes to the budget.
Those effects were in part already known, as the date for budget execution for the first six months showed that the revenues in social insurance funds remained stable. This was confirmed by the latest state statistics data for wages in private sector employment.
Official data must be dealt with caution for investment decisions, as other studies show that the official data tend to seriously underestimate the amount of wages. Those indicators are treating the officially declared labor costs.
Yet the most important indicator for the success of tax cuts is the nominal increase of wages in private sector. For 2000-2005 period these wages were rising by 5-8% on average per annum. At present the increase is over 12% on the basis of the first six months of the year. Lower social insurance rates allowed employers to declare higher part of their real labor costs.
These data confirms the success of such policy, but also carries a message for further tax cuts. The tax burden on labor still remains substantial (about 35% of total labor costs at EUR 150 which is the average wage, according to NSI; this percentage increases with salary growth, reaching 41% at EUR 400 gross wage).
The reaction by the economy to those tax changes was almost instantaneous. This confirms as though that “pension” tax is the most damaging tax for the business. The reduction of corporate tax also produced favorable effects, but with a bigger delay.
Nominal increase of private sector wages over the years:
2001 – 4.7%
2002 – 8.2%
2003 – 7.4%
2004 – 5.5%
2005 – 7.6%
2006 – 12.2%
Those effects were in part already known, as the date for budget execution for the first six months showed that the revenues in social insurance funds remained stable. This was confirmed by the latest state statistics data for wages in private sector employment.
Official data must be dealt with caution for investment decisions, as other studies show that the official data tend to seriously underestimate the amount of wages. Those indicators are treating the officially declared labor costs.
Yet the most important indicator for the success of tax cuts is the nominal increase of wages in private sector. For 2000-2005 period these wages were rising by 5-8% on average per annum. At present the increase is over 12% on the basis of the first six months of the year. Lower social insurance rates allowed employers to declare higher part of their real labor costs.
These data confirms the success of such policy, but also carries a message for further tax cuts. The tax burden on labor still remains substantial (about 35% of total labor costs at EUR 150 which is the average wage, according to NSI; this percentage increases with salary growth, reaching 41% at EUR 400 gross wage).
The reaction by the economy to those tax changes was almost instantaneous. This confirms as though that “pension” tax is the most damaging tax for the business. The reduction of corporate tax also produced favorable effects, but with a bigger delay.
Nominal increase of private sector wages over the years:
2001 – 4.7%
2002 – 8.2%
2003 – 7.4%
2004 – 5.5%
2005 – 7.6%
2006 – 12.2%
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