After the past two years of the pandemic and the associated extraordinary spending, relief measures and fluctuations in economic activity depending on whether we were in the midst of or between lockdowns, the question of how much the average employee contributed to the state from their wages last year remains no less interesting than in previous years.
Trying to answer this question is complicated by the complexity of the whole system and the number of taxes and fees in general, as well as the number of institutions that collect them and the variety of sources. The Liberal Institute’s Tax Burden Project is now in its fifth year of answering this question.
In our calculation, we assume an average employee whose income is all subject to standard tax rules and who, in addition, spends all of his or her income from that year during the year. Our calculation counts as taxes all statutory and enforceable payments, including payments that are not formally called taxes but are, for example, insurance or fees if they are non-consensual in nature.
The resulting tax burden for a regular employee, after deducting all items, is 61.57%. This leaves the employee with only CZK 19,502 of the average gross salary of CZK 50,750 to spend. In interpreting this sum, account must be taken of the fact that excise and business taxes, which normally increase the price of the goods purchased, have already been deducted. The amount left to our employee therefore represents the net real value of the goods and services he can purchase in a month from his salary.
In line with expectations, the tax burden has therefore fallen compared to last year. In absolute terms, the average employee now pays a curious CZK 666 more per month to the state than last year (not adjusted for inflation), but this is only due to the growth in average wages. If the level of the tax burden remained constant year-on-year, the average employee would pay CZK 1,628 more per month in taxes.
Several factors contribute to this, but the change in the calculation of income tax following the abolition of the super gross wage and the update of the taxpayer’s rebate is the most important among them. This effectively reduced the income tax rate by more than 5 percentage points. Property tax collections have also fallen slightly, for example, no longer including property tax, which was abolished during 2020.
On the other hand, the collection of some paternalistic excise duties has increased, as has the collection of VAT, despite the continued compensatory measures that temporarily exempted some items from excise duties. This is trivially due to the increase in economic activity compared to 2020, thanks to already moderate anti-pandemic measures.
In general, however, there have been no major structural changes in the proportions of income, property and excise taxes.
The methodology used by the Liberal Institute to calculate the tax burden is based on the methodology used to calculate the tax burden by the Conservative Institute in Slovakia, whose tax burden came out very close to the Czech one – 62.49% in 2022. However, when comparing results between countries, it is necessary to consider possible methodological differences. The resulting comparisons are therefore only approximate and illustrative.
Nevertheless, both the comparison with previous years and the comparison with Slovakia show a positive trend in fiscal policy this year, and what is more, this trend is primarily due to the active steps taken by the now ruling parties in the area of fiscal policy, and not only due to circumstances.
Hopefully, the current government will not resort to measures during the current energy crisis that would reverse this trend and lead to a higher fiscal burden again in 2023.