Where does the middle class pay the highest and lowest tax in Europe? (2024)

The UK’s middle classes continue to face financial hardship despite earning up to £60,000 a year (€70,180). according to a recent report.

In many OECD countries, the middle classes have seen their ability to save decline and, in some cases, fallen into debt, as the tax burden on the European middle class becomes increasingly controversial in the current cost crisis. of life.

The income and tax burdens of the middle class differ significantly between European countries. In general, lower-middle income earners pay the least in taxes, while upper-middle-income earners pay the most.

Household size and the number of earners also have an impact on tax rates.

Euronews Business analyzes the tax burden of the middle class, based on a data set from the economic magazine EconPol Forum, to find out where in Europe the middle class has the most purchasing power and where it pays the highest and lowest taxes.

Who is the middle class?

Before analyzing the data, it is important to look at the definition of some key terms.

According to the OECD definition, the middle class refers to households with incomes between 75% and 200% of the median national income. It is divided into three subcategories:

• Medium-low class: Income between 75% and 100% of the median national income
• Middle middle class: Income between 100% and 150% of the median national income
• Upper middle class: Income between 150% and 200% of the median national income

Household disposable income is what households have available to spend and save after taxes and transfers. The size of a household and the ages of its members are taken into account to better weight and compare them.

In which country does the middle class have the highest disposable income?

In 2019, the middle class in Luxembourg had the highest disposable income, ranging between €30,618 and €81,649, according to EconPol based on the EU Statistics survey on income and living conditions.

On the other hand, Bulgaria had the lowest average family income among European countries. Here, the disposable income of the middle class varied between 2,908 and 7,755 euros.

The graph above shows the huge differences in disposable income between EU member states and the UK in nominal terms.

If household disposable income is analyzed in terms of purchasing power (PPP), the level of differences compared to nominal terms decreased, but wide disparities still persist.

Disposable income in EPA offers a fairer comparison, as the cost of living varies widely across Europe. That means that households can consume a different amount of goods and services in different countries with the same income.

In 2019, Luxembourg’s middle class recorded the highest purchasing power: approximately double the EU average.

The middle classes of Austria and Germany also enjoyed purchasing power approximately 40% higher than the EU average. France, Ireland, Italy and the United Kingdom had purchasing power close to the EU average.

The middle classes of Eastern European countries occupied the bottom quarter. Bulgaria and Romania recorded the lowest average household income in the EU, just above 50% of the EU average.

What is the effective tax burden?

The effective tax burden of middle class households includes income taxes, mandatory social security contributions and social transfers received.

Euronews Business analyzes three different scenarios based on calculations by Mathias Dolls, Florian Dorn, David Gstrein and Max Lay of the Ifo Institute in Munich.

1. Families with double income and two children

Lower-middle-income families with two equal incomes (dual income) and two children received net benefits in Belgium (-14%), France (-5%), Greece (-4%), Estonia (-3%) and Ireland (-2%).

These negative rates meant that families received more social benefits that more than offset their tax payments and social security contributions.

Families in Denmark and Slovenia had the highest effective tax burden: the lower middle classes averaged 29% and 22%, the middle group 34% and 30%, and the upper middle classes 37% and 35%, respectively.

The case of Belgium is notable since the tax burden varied substantially between middle class segments.

While upper middle class families had to pay one of the highest tax rates (more than 33%), this was less than 20% in the middle group and -14% for the lower middle class.

2. Families with only one income and two children

Lower-middle-income families with one income and two children in France and Czechia were net recipients of transfers and therefore experienced a negative burden (net relief).

The load exceeded 20% in Finland, Denmark, Lithuania, Slovenia, the Netherlands and Slovakia.

Denmark, the Netherlands and Finland had the highest tax burden on both the middle class and the upper middle class in this scenario.

3. Single-family homes

On average, single-family households in the EU pay more taxes than families in all segments of the middle class.

This is not surprising, according to the EconPol Forum, mainly for two reasons: they mainly receive less social benefits than families due to the absence of family transfers, including child benefits.

Families are also more likely to get tax relief through joint spousal assessment and child allowances.

In 2019, single-family households had the highest tax rates in Denmark, Belgium, Slovenia and Germany. It was higher than 40% in middle- and upper-middle-class households in these four countries.

Cyprus, Romania and Estonia had the lowest tax burden for single-person households.

Families with two children and two incomes had the lowest tax burden

When we compared these three assumptions, families with two incomes and two children had the lowest tax burden. On average, the effective tax burden in the EU was only 6% for the lower middle class segment, while it was 17% in the middle group and 24% in the upper middle class.

For a single-income family with two children, these rates were 12%, 23%, and 29% respectively.

The tax burden was considerably higher for single-person households than for families. It was 26% in the lower middle class, 32% in the middle class and 35% in the upper middle class.

The table below shows the three scenarios for each middle class segment, providing a complete comparison between EU members.

OECD calls for reform of tax and benefits system

An OECD report titled “Under Pressure: The Squeezed Middle Class” found that the costs of some goods and services such as housing, which are essential to the middle class lifestyle, have risen faster than incomes and general inflation in recent decades.

Middle class used to mean the security of living in a comfortable home and offering a rewarding lifestyle for many generations.

“However, there are now signs that this foundation of our democracies and economic growth is not as stable as in the past,” warns the OECD.

The lower middle class feels that the current socioeconomic system is unfair, according to the report, published in 2019. “This can be solved by reviewing and adapting the tax and benefit system,” the report says.