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Nov 22, 2016

Hungary to raise minimum wage and cut payroll taxes

Hungary's 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

Hungary will raise its minimum wage and cut payroll taxes to attract workers, it has been announced.

Mihály Varga, minister for National Economy, said 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.

Reuters reports that the higher wages are designed to entice workers who have left the country to return 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.

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 labor 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, Minister 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.