Hun­gary to boost min­i­mum wages, cut pay­roll taxes

Kuwait Times - - BUSINESS -

Hun­gary will raise its min­i­mum wage lev­els sharply but cut back on em­ploy­ers’ pay­roll taxes un­der a deal reached yes­ter­day be­tween govern­ment and em­ploy­ers de­signed to com­bat a se­vere la­bor short­age.

The state news agency MTI quoted Econ­omy Min­is­ter Mi­haly Varga as say­ing the min­i­mum wage will in­crease by 15 per­cent in 2017 and an­other 8 per­cent in 2018. The pay­roll tax paid by em­ploy­ers will be cut by 5 and 2 per­cent­age points at the same time. For skilled work­ers the guar­an­teed min­i­mum wage, a higher wage cat­e­gory, will in­crease by 25 per­cent in 2017, and an­other 12 per­cent in 2018. The higher wages are de­signed to at­tract work­ers who have left the coun­try back to Hun­gary. The govern­ment also wants to make it eas­ier to bring in for­eign work­ers from neigh­bor­ing coun­tries with Hun­gar­ian-speak­ing pop­u­la­tions, such as Ukraine.

Peter Virovacz, an­a­lyst of ING Bank, said the move was a step in the right di­rec­tion, but may have come too late. “This will not make many more peo­ple ap­pear in the labour mar­ket,” he said. “For that, a mod­erni­sa­tion of ed­u­ca­tion and changes in public em­ploy­ment are needed.”

Wage growth has been fairly high in Hun­gary at a time of no in­fla­tion. The un­em­ploy­ment rate has plum­meted with the eco­nomic re­cov­ery suck­ing up any avail­able labour and work­ers leav­ing for higher wages in West­ern Europe.

In Septem­ber, an­nual gross wage growth was 6.7 per­cent. Un­em­ploy­ment came in at 4.9 per­cent. If gross wage growth in the first nine months of next year ex­ceeds 11 per­cent, an­other 0.5 per­cent­age point re­duc­tion in pay­roll taxes kicks in, Varga said. He said there was no im­me­di­ate need to mod­ify the coun­try’s 2017 bud­get be­cause of the chang­ing wage en­vi­ron­ment but that the min­istry will re­assess its macroe­co­nomic forecasts in light of the agree­ment.

“This will not have an im­me­di­ate im­pact on in­fla­tion, we still ex­pect 2017 in­fla­tion to be 1.9 per­cent, maybe a few dec­i­mal points higher, as the VAT (value added tax) cut has a mod­er­at­ing ef­fect,” Erste Bank an­a­lyst Or­solya Nyeste told Reuters. She added that labour short­age across the econ­omy could boost in­fla­tion in the medium term, which could even ex­ceed the cen­tral bank’s 3 per­cent tar­get. Still, she said the cen­tral bank should stick to its record low 0.9 per­cent in­ter­est rate.

“It is pos­si­ble that a higher growth and higher in­fla­tion en­vi­ron­ment may lead to a rate hike in 2019,” she said. The cen­tral bank has said re­peat­edly that it saw rates at the cur­rent level for its en­tire pol­icy hori­zon.

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