European Tax Burden on Labor Averaged 38.9 Percent in 2025

Governments with higher taxes generally tout that they provide more services, and while this is often true, the cost of these services can be more than half of an average worker’s salary, and for most, at least a third of their salary.

Individual income taxes, payroll taxes, and consumption taxes make up a large portion of many countries’ tax revenue. These taxes combined make up the tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. burden on labor, both by taxing wages directly and by taxing wages used for consumption. This so-called tax burden on labor reflects the difference between an employer’s total cost of an employee and the employee’s net disposable income.

Payroll taxes are typically flat-rate taxes levied on wages, in addition to the taxes on income. In most European countries, both the employer and the employee pay payroll taxes. These taxes usually fund specific social programs, such as unemployment insurance, health insurance, and old-age insurance. Although payroll taxes are typically split between workers and their employers, economists generally agree that both sides of the payroll tax A payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. ultimately fall on workers.

Tax Wedges Vary Across Europe

Although the tax wedge Broadly speaking, a tax wedge is the difference between the pre-tax price or return and after-tax price or return. For labor income, it is the difference between the total labor costs to the employer and the corresponding net take-home pay of the employee. in Europe is generally high, there is a relatively wide range between countries. On average, across the European Union and the United Kingdom, single, average-wage workers paid 38.9 percent of their labor compensation in taxes in 2025.

2026 Data 2025 2024 2023 2022 2019

Expand or Collapse Table

Composition of the Tax Burden on Labor in Europe, 2025

Tax Wedge of a Single Worker with No Children Earning a Nation's Average Wage as a Percentage of Labor Costs, 2025

Country	Tax Wedge	Rank	Personal Income Tax	Employee Social Contributions	Employer Social Contributions	Cash Benefits
Belgium	50.81	1	18.68	11.02	21.10	0.00
Germany	46.55	2	10.82	17.65	18.08	0.00
Slovenia	46.17	3	11.47	20.46	14.24	0.00
Slovak Republic	44.64	4	8.22	9.84	26.58	0.00
Austria	44.63	5	8.95	14.05	21.64	0.00
France	44.60	6	11.05	8.59	24.96	0.00
Romania	42.79	7	6.36	34.23	2.20	0.00
Estonia	42.64	8	16.18	1.20	25.26	0.00
Italy	42.54	9	11.07	7.19	24.29	0.00
Czech Republic	41.40	10	7.47	8.67	25.26	0.00
Hungary	41.15	11	13.27	16.37	11.50	0.00
Luxembourg	40.73	12	17.89	10.83	12.01	0.00
Sweden	40.62	13	11.40	5.32	23.91	0.00
Latvia	40.52	14	12.94	8.50	19.09	0.00
Lithuania	40.12	15	19.22	19.16	1.74	0.00
Finland	40.09	16	15.75	7.10	17.25	0.00
Spain	40.06	17	12.16	4.89	23.02	0.00
Poland	39.95	18	11.57	11.38	17.00	0.00
Netherlands	37.21	19	10.07	12.35	14.78	0.00
Portugal	36.42	20	8.34	8.89	19.19	0.00
Bulgaria	34.91	21	7.23	11.56	16.12	0.00
Denmark	34.32	22	35.33	0.25	0.50	-1.76
Greece	31.82	23	6.57	10.98	17.89	-3.62
Croatia	31.52	24	11.52	20.00	0.00	0.00
Ireland	29.51	25	15.99	3.69	10.03	0.20
United Kingdom	29.20	26	12.13	5.22	11.86	0.00
Malta	29.18	27	13.44	7.87	7.87	0.00
Cyprus	26.41	28	3.15	9.92	13.34	0.00

Source: Author calculations using EUROMOD J2.0+, UKMOD B2026.01, and ONS-ASHE 2024/25.
Data compiled by Alex Mengden, Michael Christl

Belgium has the highest tax burden on labor at 50.8 percent (also the highest of all OECD countries), followed by Germany and Slovenia at 46.6 percent and 46.2 percent, respectively.

Cyprus had the lowest tax burden at 26.4 percent, followed by Malta and the United Kingdom (both at 29.2 percent).

To make the taxation of labor more efficient, policymakers should understand their country’s tax wedge and how the tax burden on labor funds government services. This will be particularly important as policymakers explore ways to encourage robust economic growth.

Changes to Income Tax Systems Directly Impact the Tax Burden on Labor

Some individual countries have made substantial changes to their income and payroll taxes in the last two decades. According to OECD data, Hungary, the OECD country with one of the highest tax burdens on labor in 2000 at 54.7 percent, has had the most notable decrease in its tax wedge, to 41.2 percent in 2024. This is partially due to the introduction of a flat tax An income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. on income, which lowered the income tax burden relative to total labor costs. Additionally, Hungary reduced its payroll taxes relative to total labor costs. Lithuania and Sweden have also lowered their tax burdens on labor substantially, with a reduction between 6.4 and 8.7 percentage points each.

Across the EU and the UK, the average tax burden on labor decreased by 0.06 percentage points between 2024 and 2025.

Overall, between 2024 and 2025, 16 European countries increased their tax burden on labor, while 9 countries reduced it. Several countries in Europe do not adjust the income tax to either inflation Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin or aggregate wages, which can lead to bracket creep, unintentionally pushing workers into higher tax brackets A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat..

During this period, the tax burden increased the most in the UK and Estonia by 1.9 percentage points and 1.6 percentage points, respectively, and decreased the most in Greece, by 3.8 percentage points, followed by Malta (1.8 percentage points) and Latvia (1.7 percentage points).

The UK increased its tax burden on labor by raising the rate of employer national insurance contributions while reducing the secondary threshold. Estonia raised its flat personal income tax rate from 20 to 22 percent.

The fall in Greece’s tax burden on labor is largely driven by a rent subsidy for low- and middle-income households and minor cuts to health insurance contribution rates. Malta raised its lower income tax thresholds for 2025. Latvia reduced its tax burden on labor by simplifying its income tax schedule, abolishing the middle-income tax rate, and moving to a fixed tax-free allowance that does not phase out with income.

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About the Authors

Expert

Alex Mengden

Economist Alex Mengden is an Economist at the Tax Foundation, where he focuses on international tax issues and tax policy in Europe. He holds a BA in philosophy and economics from the University of Bayreuth and an MSc in economics from the Ludwig Maximilian University of Munich.

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Michael Christl

Research Fellow, Tax Foundation Europe Michael Christl is a Research Fellow at the Tax Foundation and Associate Professor of Economics at Universidad Loyola Andalucía in Seville, Spain. He has held several research and policy roles at the European Commission, including at the Joint Research Centre (JRC) and the Directorate-General for Economic and Financial Affairs (DG ECFIN), where he worked on fiscal policy topics across EU member states. He also has experience from think tanks and consulting in Austria, including Agenda Austria and Macro-Consult.

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June 4, 2024

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