According to the Tax Foundation, single average wage workers in Europe were paying about one third of their wages in taxes in 2022. Unsurprisingly, tax burdens across Europe vary significantly, with workers in Western European and more developed countries paying considerably more.
Denmark (55.9%), Austria (55%), Portugal (53%), Sweden (52.3%) and Belgium (50%) are some of the countries with the highest personal income tax rates.
On the other hand, Romania (10%), Bulgaria (10%), Bosnia and Herzegovina (10%), Kosovo (10%) and North Macedonia (10%) are the European countries with the lowest taxes.
Danish citizens welcome higher taxes
However, surprisingly, not all citizens are unhappy about higher taxes, including in Denmark, where taxes can reach an eye-watering 55.9%.
In this case, many citizens consider the payment to be an investment in the collective future of the country and society, or akin to buying a certain quality of life. To note, Denmark was ranked the second happiest country in the world for the fourth year in a row, according to the 2023 World Happiness Report.
This allows all segments of society, regardless of gender, socio-political or economic standing, to avail the same opportunities, thus considerably reducing economic and social burdens. Most education, especially higher education in Denmark is free, with college students also receiving a grant from the Danish government.
This support continues into the workplace, with parents being entitled to 52 weeks of parental leave, out of which 32 weeks are paid by the state. The Danish labour market model, dubbed the flexicurity model, also provides flexibility for employers and security for workers, while also emphasising active labour participation. This allows both workers and the state to provide a safety net in case of unemployment.
As such, many are quite content to pay their share of taxes, especially if the public services actually being received are of high quality.
However, this also comes with its share of disadvantages, with Denmark also having to offer these education grants to students from other European Union countries, even though they rarely end up staying long-term in the country.
Social security systems prop up hefty taxes in Austria
For Austria, another country with high taxes at 55%, the social insurance system, which includes the statutory health insurance system, the statutory pension insurance system and the statutory work accident system, is quite prized. Apart from these, it also covers maternity and unemployment.
The country requires all employees to be insured, as well as people on unemployment benefits, on pensions - or receiving any other kind of needs-based funding.
In countries such as Belgium, single childless people bear the brunt of the highest taxes, whereas married couples with children get a slightly lighter burden.
Although the country boasts a high quality of health care, registering for this can be a long and complicated process, involving a social security fund and public health insurance fund registration.
Belgium tax payers see almost 65% of their wages deducted
Monthly social insurance contributions also need to be paid. Therefore, someone living in Belgium on a salary of €45,000, for example, will be taxed at 50% over €42,370. Additionally, the employee will have to pay 13.07% on social security contributions.
There's also a special social security contribution to pay, varying between €9.30 and €60.94 per month. A person on this salary will therefore take home around €1,369 per month, approximately 36% of your paycheck.
Keeping in mind that the minimum wage in Belgium is €1,994.18 per month, before tax, the monthly pay on a €45,000 salary would leave a resident with much less than the minimum wage.
This has led to increasing frustration among Belgians in recent years, who feel like they are not quite getting what they pay for in taxes, compared to their Scandinavian counterparts.
However, Belgium has been slowly making an effort to reduce wage taxation, according to the OECD, with the average single worker seeing their tax wedge reduce by about 2.7% between 2009 and 2022.
Swedish Tax Agency one of the most trusted in the country
Much like in Denmark, Swedish citizens also don’t mind paying quite high taxes, in this case, about 52.3%, for a well-functioning society and high-quality public services. The Swedish Tax Agency, Skatteverket, is one of the most trusted and respected agencies in the country, behind only the Swedish Patent and Registration Office (PRV) and the property division, Lantmateriet.
This is due to the tax agency being involved in most aspects of citizen life, such as births, marriages, moving properties and death, amongst others - and making sure that a high quality of service is provided. Not only that, but it is also very customer-friendly and accessible, thus making it even more trusted.
Lower taxes in Eastern European countries mean more investment opportunities
For Eastern and Southeastern European countries such as Romania, Bulgaria and Bosnia and Herzegovina, which are still developing their infrastructure and economies, lower taxes are a way to attract and hopefully retain foreign investment.
These countries often provide cheaper labour and production costs, tax breaks and a wealth of untapped markets and opportunities. Not only that, but they can also often provide a better standard of living, due to the cost of living being significantly cheaper than most Western European countries.
Not only that, but Southern and Eastern Europe also has some of the fastest growing economies, with Bulgaria, North Macedonia, Romania and Cyprus all being seen as the next growth spots for several companies and industries.
However, in recent months, countries such as Romania are trying to increase taxes for employees in the software sector. The government is also trying to remove health insurance payment exemptions for construction, food and agriculture sector employees, in order to increase tax income.
Higher salaries often offset more tax burden
In some cases, average salaries.) in higher taxing countries such as Denmark and Austria are also more, which has gone a long way in alleviating some of the financial pressure. According to Eurostat, in 2022, the average salary in Denmark was about €62,972.33, while in Austria, this was €68,690.65.
This is due to more open wage negotiation, for example, due to Denmark’s flexicurity labour model, as well as a higher emphasis on education and career-long learning. Some countries also experience more demand in high-paying sectors such as finance, banking, law and medicine.
Advancing inflation could compound tax burdens
Inflation is also another factor which could make tax burdens potentially feel heavier. This is especially true following the Russia-Ukraine war inflaming energy and food prices in the last few years. Other conflicts such as the Israel-Hamas war have also added to the mix, with Red Sea disruptions further fuelling soaring energy and other good prices.
If this trend continues, rising consumer prices will also put more pressure on people’s wallets, thus making higher taxes feel more difficult.
Although Eurozone inflation dropped to a two-year low of 2.8% in January, the European Central Bank (ECB) is still maintaining a cautiously optimistic, data-dependent approach before taking any decisions about cutting interest rates.
