The Covid-19 pandemic sparked the largest decrease in taxes on wages since the 2008 global financial crisis, according to a new report by the Organisation for Economic Co-operation and Development.
Lower household incomes coupled with tax reforms linked to the pandemic are driving widespread declines in taxes on wages across the 37-member bloc, the OECD's Taxing Wages 2021 report said on Thursday.
Governments and central banks have provided more than $12 trillion in monetary and fiscal support to economies since the outbreak of the pandemic, which disrupted economic activity and tipped the world into one of the steepest recessions since the Great Depression.
The decrease was derived for the most part from lower income taxes, linked in part to lower nominal average wages in 16 countries, and in part to policy changes
The report highlighted record falls in the tax wedge – a measure of how much a government receives after taxing employers and employees, minus family benefits – across the OECD during 2020.
"In some countries, employees have taxes withheld from their pay cheques, which means their take-home pay is less than the gross salary or the cost of employing them," Anurag Chaturvedi, managing partner at Chartered House Tax Consultancy, told The National. "The tax wedge is the difference between what employees take home in earnings and what it costs to employ them."
The tax wedge for a single worker at the average wage was 34.6 per cent in 2020, a decrease of 0.39 percentage points from the previous year.
“This is a significant fall, but is smaller than the decreases seen in the global financial crisis – 0.48 percentage points in 2008 and 0.52 percentage points in 2009,” the report said.
“The tax wedge increased in seven of the 37 OECD countries over the 2019-20 period and fell in 29, mainly due to lower income taxes.”
The OECD also found that labour taxation varied considerably across the bloc, with the tax wedge on the average single worker ranging from zero in Colombia to 51.5 per cent in Belgium.
“The decrease was derived for the most part from lower income taxes, linked in part to lower nominal average wages in 16 countries and in part to policy changes, including tax and benefit measures introduced in response to the Covid-19 pandemic,” the report said. “The rises in tax wedge were driven by higher income tax.”
An increase in the tax wedge reduces the quantity of goods and services that workers can buy due to an increase in withheld tax, Mr Chaturvedi said. He added that a decrease in buying power suppresses demand, which can lead to a rise in inflation and fiscal deficits.
Meanwhile, the drop in the tax wedge was more significant for households with children, bringing tax rates to new lows for families.
The average tax wedge for a one-earner couple at the average wage with children in 2020 was 24.4 per cent, a decrease of 1.1 percentage points from 2019. This is the largest fall and lowest level seen for this household type since the OECD started producing the Taxing Wages report in 2000.
The tax wedge for this household type decreased in 31 countries and rose in only six between 2019 and 2020. The largest decreases were in Lithuania, the US, Poland, Italy, Canada and Korea. The only increase over 1 percentage point was in New Zealand.
The gap between the OECD average tax wedge for the single average worker (34.6 per cent) and the one-earner couple with children (24.4 per cent) has widened by 0.7 percentage points since 2019. This is because policymakers provided additional support to families with children during the Covid-19 crisis.
In the 10 countries where specific Covid-19 measures affected the indicators, support was primarily delivered through enhanced or one-off cash benefits, with a focus on supporting families with children.
Only a few countries introduced measures to change the structure of their personal income taxes or social security contributions in direct response to the Covid-19 pandemic, the report said.
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Key changes
Commission caps
For life insurance products with a savings component, Peter Hodgins of Clyde & Co said different caps apply to the saving and protection elements:
• For the saving component, a cap of 4.5 per cent of the annualised premium per year (which may not exceed 90 per cent of the annualised premium over the policy term).
• On the protection component, there is a cap of 10 per cent of the annualised premium per year (which may not exceed 160 per cent of the annualised premium over the policy term).
• Indemnity commission, the amount of commission that can be advanced to a product salesperson, can be 50 per cent of the annualised premium for the first year or 50 per cent of the total commissions on the policy calculated.
• The remaining commission after deduction of the indemnity commission is paid equally over the premium payment term.
• For pure protection products, which only offer a life insurance component, the maximum commission will be 10 per cent of the annualised premium multiplied by the length of the policy in years.
Disclosure
Customers must now be provided with a full illustration of the product they are buying to ensure they understand the potential returns on savings products as well as the effects of any charges. There is also a “free-look” period of 30 days, where insurers must provide a full refund if the buyer wishes to cancel the policy.
“The illustration should provide for at least two scenarios to illustrate the performance of the product,” said Mr Hodgins. “All illustrations are required to be signed by the customer.”
Another illustration must outline surrender charges to ensure they understand the costs of exiting a fixed-term product early.
Illustrations must also be kept updatedand insurers must provide information on the top five investment funds available annually, including at least five years' performance data.
“This may be segregated based on the risk appetite of the customer (in which case, the top five funds for each segment must be provided),” said Mr Hodgins.
Product providers must also disclose the ratio of protection benefit to savings benefits. If a protection benefit ratio is less than 10 per cent "the product must carry a warning stating that it has limited or no protection benefit" Mr Hodgins added.
Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
SERIES SCHEDULE
First Test, Galle International Stadium
July 26-30
Second Test, Sinhalese Sports Club Ground
August 3-7
Third Test, Pallekele International Stadium
August 12-16
First ODI, Rangiri Dambulla Stadium
August 20
Second ODI, Pallekele International Stadium
August 24
Third ODI, Pallekele International Stadium
August 27
Fourth ODI, R Premadasa Stadium
August 31
Fifth ODI, R Premadasa Stadium
September 3
T20, R Premadasa Stadium
September 6
More on Quran memorisation:
School counsellors on mental well-being
Schools counsellors in Abu Dhabi have put a number of provisions in place to help support pupils returning to the classroom next week.
Many children will resume in-person lessons for the first time in 10 months and parents previously raised concerns about the long-term effects of distance learning.
Schools leaders and counsellors said extra support will be offered to anyone that needs it. Additionally, heads of years will be on hand to offer advice or coping mechanisms to ease any concerns.
“Anxiety this time round has really spiralled, more so than from the first lockdown at the beginning of the pandemic,” said Priya Mitchell, counsellor at The British School Al Khubairat in Abu Dhabi.
“Some have got used to being at home don’t want to go back, while others are desperate to get back.
“We have seen an increase in depressive symptoms, especially with older pupils, and self-harm is starting younger.
“It is worrying and has taught us how important it is that we prioritise mental well-being.”
Ms Mitchell said she was liaising more with heads of year so they can support and offer advice to pupils if the demand is there.
The school will also carry out mental well-being checks so they can pick up on any behavioural patterns and put interventions in place to help pupils.
At Raha International School, the well-being team has provided parents with assessment surveys to see how they can support students at home to transition back to school.
“They have created a Well-being Resource Bank that parents have access to on information on various domains of mental health for students and families,” a team member said.
“Our pastoral team have been working with students to help ease the transition and reduce anxiety that [pupils] may experience after some have been nearly a year off campus.
"Special secondary tutorial classes have also focused on preparing students for their return; going over new guidelines, expectations and daily schedules.”
