and best wishes for a successful 2023

European economies rank markedly above the global average in the cost of taxes on employment for businesses, shows a new study of 23 countries by UHY, the international accounting and consulting network. Across Europe, the average cost of employing a worker earning $30,000 per year is now $6,202 (20.7% of salary), 13%% more than the global average of $5,468 per year – 18.2% of salary. This includes costs such as social security, unemployment insurance and mandatory pension contributions.

As more countries face rising economic stress triggered by inflation and increasing interest rates, governments are likely to come under more pressure to cut these costs. The lower the costs of employing workers, the less likely businesses are to need to make layoffs if their economies enter recession.

Subarna Banerjee, Chairman of UHY International, says that some significant economies levy employment taxes far below the global average, including New Zealand (4% of salary) and the Republic of Ireland (11.1% of salary – see table below).

Banerjee says that more governments could consider reducing the employment tax burden to help protect both businesses and workers as more economies threaten to slide into recession in the coming months.

Says Subarna Banerjee: “As businesses around the world face growing cost burdens, more governments could consider using the levers they have available to help them. Reducing taxes on employment would be a pretty direct way of incentivising businesses not to make redundancies.”

“Many economies have enjoyed near-record levels of employment in recent years, but that is expected to change. Keeping as many people as possible in work should be a key target for policy-makers in the coming months. A rise in unemployment will only exacerbate the issues many countries are facing due to consumer spending dropping sharply.”

Ireland, New Zealand among lowest employment tax economies

Both New Zealand and the Republic of Ireland are amongst the economies with the lowest burden of employment taxes in UHY’s study of 23 countries worldwide. Ireland ranks 17^th overall, while New Zealand is 22^nd.

Employers in New Zealand pay just $1,209 per year in taxes on employment for a worker earning $30,000. This includes the national KiwiSaver pension fund (3% of salary) and the contribution to the Accident Compensation Corporation (1% of salary). Employees have even lower costs, paying just a mandatory 1.39% of salary on top of income tax.

Employers in Ireland pay just $3,315 per year in employment taxes for a worker earning $30,000, through the country’s Pay Related Social Insurance (PRSI). The rate of PRSI is reduced even further to 8.8% if the worker earns less than $481 per week.

Grant Brownlee, Director at UHY Haines Norton, UHY’s member firm in New Zealand, comments: “With the New Zealand economy slowing unexpectedly in the last few months, it’s important that businesses aren’t burdened by employment taxes. Our unemployment rate is among the lowest in the world and it’s important that businesses aren’t forced to make redundancies should we enter a recession. For businesses, laying off staff can be a last resort if taxes stay low.”

UHY’s study also shows that France has the highest rate of employment taxes for businesses employing higher earners. A French business paying an employee $300,000 per year must pay employment taxes of $121,014 (40.3% of salary). This is more than three times the global average of $39,508 (13.2% of salary) and 2.9 times the European average of $44,159 (14.7% of salary).

UHY’s study assessed the annual government-levied taxes to businesses of employing workers on salaries of $30,000 and $300,000 during the 2022 tax year across 23 countries worldwide. The full study is available below.

Notes for Editors

UHY global press contact:

Leigh Lyons on +44 20 7767 2624

Email: L.Lyons@uhy.com – www.uhy.com

Nick Mattison or Richard Crossan

Mattison Public Relations

+44 20 7645 3631

+44 74 4637 5555

Email: richard.crossan@mattison.co.uk

Tax receipts from around the world have fallen by nearly $500bn in real terms to $11.7tn during the Covid-19 pandemic, down from $12.1tn the year before*, which may force Governments to make unprecedented tax increases to make up for losses, reveals a new study of tax revenues worldwide by UHY, the international accountancy network.

UHY’s study shows 26 out of 30 countries suffered from a hit to tax revenues. Some of the biggest decreases include the UK which saw tax revenues fall 11%* to $728bn and Russia which also fell 11%* to $295bn (see table below).

UHY says the fall in tax revenues is due to the Covid-19 pandemic, as governments cut taxes for individuals and businesses in an effort to boost their economies. In addition, tax revenues were hit by a fall in tax on corporate profits and a reduction in transactions that are subject to tax (e.g. VAT on purchases and tax on property transactions).

At the same time, governments introduced Covid support schemes such as covering employees’ wages to help those who were impacted by the pandemic. Although these schemes have helped to boost national economies, the additional costs have impacted public purses significantly. As a result, tax increases will be required in many countries to make up for major deficits.

Some countries have already begun implementing tax increases, such as the UK, which recently increased National Insurance contributions, generating an extra £17bn per year. The Spanish government introduced tax increases in the midst of the pandemic, with the income tax rate on income above EUR 300,000 increasing from 45% to 47%. Spain’s VAT rate on alcohol also increased from 10% to 21% earlier this year.

The US is currently undergoing discussions about imposing increases to corporation tax and rates of income and capital gains tax for the wealthiest households to raise revenues.

Subarna Banerjee, Chairman of UHY International, comments: “The enormous impact of the pandemic on tax revenues has been felt worldwide.”

“Many governments have been put in difficult positions, having to provide support to those who have been hit hard by Covid-19 while trying to prevent revenues from falling too far. Unfortunately, there will come a time where they need to balance the books and some governments may look to use tax increases to do so.”

“However, governments need to be cautious about any dramatic plans to increase their tax revenues. Sudden, large tax increases will place huge amounts of pressure on taxpayers, many of whom are also still getting back on their feet.”

Tax revenues of major economies take a hit during Covid

Germany’s tax revenues fell 8%* to $837bn in 2020. During the pandemic the German government introduced a number of tax reliefs in the hope of boosting the economy. The standard rate of VAT in Germany was reduced from 19% to 16% last year. Businesses in the catering sector, arguably one of the sectors that suffered the most from Covid-19, benefited from an even bigger reduction in VAT from 19% to 7% on food sales.

Another major economy that suffered from a fall in tax revenues was China, falling 5%* to $2.2tn last year. China recognised the impact of the pandemic on smaller enterprises and as a result, introduced a number of tax reliefs focused on supporting these businesses. An example is the significant reduction in Corporate Income Tax, which for small and micro enterprises with a tax income below RMB 1 million, was reduced from 25% to 5% last year. In 2021, it was announced this rate would be cut even further to 2.5%.

Global tax receipts fall 4% during pandemic – costing nearly $500bn in real terms to public finances

Notes for Editors

UHY global press contact:

Leigh Lyons on +44 20 7767 2624

Email: l.lyons@uhy.com – www.uhy.com

Nick Mattison or Richard Crossan

Mattison Public Relations

+44 20 7645 3631

+44 74 4637 5555

Email: richard.crossan@mattison.co.uk