What have Italy, Israel and Japan in common? The sad fact is that, since the turn of the millennium, the purchasing power of their populations’ pay levels have virtually stood still. Between 2000 and 2018 their standard of living remained virtually static.
To make matters worse, the tax take as a percentage of GDP in Italy grew by an unaffordable 1.5% and Japan by 5.6% over the same period – thus squeezing more wealth out of the economy as well as the pockets of their populace. Only in Israel did the government respond by reducing the overall tax take.
Across OECD countries as a whole the real success stories in the tax take/purchasing parity balancing act have been the Irish Republic, the Slovak Republic and Sweden. Each of these countries have been able to raise their pay purchasing power parity (PPP) levels by over 30% over 2000-2018, as well as reduce their tax take as a percentage of GDP.
|
|
PPP |
Tax/GDP |
|
Irish Republic |
+30.8% |
– 8.5% |
|
Slovak Republic |
+57.5% |
– 0.5% |
|
Sweden |
+30.1% |
– 5.0% |
Scandinavian countries generally reduced their tax to GDP ratios, but from very high levels, whilst the USA cut its already modest tax to GDP level by 4%, but achieved only 17% pay PPP growth. The UK managed to raise pay PPP by 21.3% – slightly ahead of the USA, but increased the tax drain on wealth by 0.8%.
The most disappointing of all the major economies was France where pay PPP rose by just 19.9%, but whose government stripped wealth out of the economy to the tune of 46.1% of GDP by 2018 – the highest in the OECD.
According to Robin Chater, Secretary-General of the Federation of International Employers (FedEE), “As we approach the end of another year, we can look forward to a widening gap between winners and losers. A great deal is made by economists and governments about pay gaps between top and bottom earners, the gender pay gap and the tax squeeze on higher earners, but at an international level it is the real purchasing power of pay levels between nations and how much overall tax is being forced by governments out of wealth generated that ultimately counts. Countries with falling pay PPPs need to follow Israel’s example and reduce effective tax levels as a proportion of wealth generated. However, if things are moving well on the pay purchasing power parity front, then the ultimate example is the Irish Republic. This well run little country has performed an economic miracle all of its very own during the last two decades, in spite of the last global downturn and its economically important neighbour – the UK – taking steps to leave the EU.“