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Oct 21, 2016

Hungarian government set to cut payroll taxes

Hungary is planning to cut payroll taxes in a two-to-three-year program that will include incentives for employers to raise wages

The Hungarian government is planning to cut payroll taxes in a two-to-three-year program that will include incentives for employers to raise wages, Mihaly Varga, the minister for National Economy, has said.

According to Reuters, Hungary has the fourth-highest tax wedge - the total employer and employee tax burden as a share of pay - among the 34 member countries of the Organisation for Economic Co-operation and Development. In 2015, the tax wedge for the average single worker was 49 percent compared with a 36-percent OECD average.

The government has already flagged plans to lower payroll taxes due to an improvement in public finances. This month, the government cut the 2016 deficit target to 1.7 percent of economic output. "Our plans foresee a reduction in payroll taxes on a 2-3-year horizon," Varga said.

"This would be implemented in such a way that, after the second or the third year, the reduction is linked with a system that gives incentives to raise pay through a reduction in the payroll tax."

Varga did not provide further specifics.

Hungary is grappling with a labor shortage that is already driving up wages across the economy. Unemployment stood at 4.9 percent in June-August, and gross wages were up by an annual 6.9 percent in August, at a time of no inflation.