Govʼt to continue payroll tax cuts, conditional on wage rises

Banking

Minister of Finance Mihály Varga confirmed on Wednesday that the government would continue to reduce the payroll tax in 2019 if wages rise at a sufficient pace.  The government could cut the 19.5% payroll tax by another two percentage points next year, depending on the rise in real wages.

Under an agreement reached with employers and unions in November 2016, the government committed to payroll tax reductions conditional on wage increases. The tax was cut from 27% in 2016, to 22% in 2017, to 19.5% in 2018. At the same time, minimum wages for skilled and unskilled laborers were raised in the double digits.

The agreement stipulates that from 2019, the payroll tax will be reduced a further four times by two percentage points on each occasion. The cuts are timed from the start of the second quarter of each calendar year as long as the gross average private sector wage rises at least 6% year-on-year in the first quarter of the given year.   

An explanatory memorandum for the 2019 budget bill says the payroll tax cut is expected to take place from July 1.

Real wages were up a little more than 10% in the year to April, according to the latest data from the Central Statistical Office (KSH). 

Presenting the 2019 budget bill in Parliament, Varga also told lawmakers that a bill submitted by the government would raise the threshold for tax deductions on the profit companies put into reserves and earmark for investments from HUF 500 million to HUF 10 billion a year.

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