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OECD: Austria should lower wage tax

The Local · 10 Feb 2015, 10:43

Published: 10 Feb 2015 10:43 GMT+01:00

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The Organization for Economic Co-operation and Development says Austria needs to enhance competition in the service sector and reduce effective marginal income tax rates, in particular for low-income workers.

It also recommends that taking further steps to eliminate pathways to early retirement would strengthen the labour market, and that reducing the strong influence of socio-economic background on education outcomes would boost productivity growth.  

The proposals are included in the Paris-based organization’s Going for Growth report issued on Monday to coincide with the start of the G-20 finance ministers meeting in Istanbul.

In Austria labour taxes include personal income tax and employee plus employer social security contributions. The report notes that taxation is particularly high for low income earners, with the average childless taxpayer paying almost 20% more tax than the OECD average.

Such high tax rates, especially at low income levels, undermine work incentives the report says. It recommends reducing the lowest income tax rate, something the government is working towards doing, and partly or fully waiving social insurance contributions, which could be financed by a further broadening of the tax base and increases in consumption, environmental and property taxes.

No more early retirement

The report also recommends bringing the official retirement age for women in line with that for men and eliminating any subsidised avenues to early retirement. A recent report from Austria’s Court of Audit shows that an overwhelming majority of public sector workers retire substantially below the statutory pension age - which is 65 for men and 60 for women.

Other key priorities identified in the OECD report are reducing barriers to entry in network industries such as gas and electricity markets, and ensuring that network access prices are not kept artificially high.

Post-secondary education rates in Austria, in particular for immigrants, is below the EU average and drop-out rates are high.

The report says that the influence of socio-economic background on educational outcomes is strong, in particular migration status.

Somewhat controversially it recommends allowing universities to re-introduce tuition fees in order to finance improvements in the provision of post-secondary education. It says that fees should be accompanied by a grant and student loan system to avoid socio-economic segregation.

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