Latvia has highest tax wedge on labor among the Baltics

RIGA - According to the latest SEB Baltic Household Outlook, the tax wedge of a single average wage earner was the highest in Latvia – 44.2 percent in 2011.

It means that a single taxpayer at average earnings in Latvia took home only 55.8 percent of what he cost to his employer in 2011. The tax wedge in Lithuania (40.7 percent) and in Estonia (40.1 percent) was lower than the EU average (43.7 percent).

Latvia also had a higher tax burden on low wage earners, compared to Lithuania and Estonia. In Latvia, the tax wedge of a worker with 67 percent of average earnings was 43.4 percent in 2011, whereas in Lithuania and Estonia the tax wedge for lower income workers was 38.9 and 38.8 percent respectively. In the EU, the average tax wedge for this income group amounted to 39.6 percent.

In 2011, Latvia had the seventh highest tax wedge for low-income earners in the EU.

As a result of the PIT rate cut to 24 percent, the tax wedge for average wage earners in Latvia will decrease by 0.6 percentage points. However, Latvia still has the highest tax wedge on labor among the Baltic States. In Estonia, the cut in unemployment insurance tax to 3 percent (previously 4.2 percent) will also decrease the tax burden on labor.