Value Added Based Employers' Contribution as an Alternative to Employers' Social Security Contributions – an Austrian Perspective

Over the past decades, the introduction of a Wertschöpfungsabgabe (employers' contribution based on value added) as an alternative form of employers' contribution to the social security scheme has repeatedly been the subject of discussion in Austria. A value added based contribution would include corporate profits and interest expenses in the base to assess social security contributions which are currently based on gross wages and salaries. If the employers' contribution were to extend to the gross value added, depreciation would be included as well. A key criterion in assessing the suitability of such a contribution as an alternative source for financing the social security system is, first of all, its long-term yield potential, also with due regard to (international) tax planning, followed by other important economic aspects such as, in particular, the contribution's effects on efficiency, employment and distribution. Moreover, practical administrative aspects need to be considered as well.