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Govt to change wage compensation system

A proposal before government would transfer the HUF 21 billion in the central budget from which employees whose net wage has declined as a result of this year's tax changes could apply directly for compensation to the funding earmarked for companies' wage compensation, internet news portal site said.

The government originally divided the wage compensation system and the available central budget resources into two parts: one was made available to employers and the other part to employees.

The new proposal would shift the HUF 21 billion compensation currently available to employees into the general limit for employers, wrote.

The proposal cited by the website said the original system of compensation needed to be changed because it contained the wrong incentives. One of these is that if employees could directly apply for compensation, employers would not be interested in raising their wages. The document said it could create a budget risk worth HUF 70 billion - 90 billion if the usual wage rises are not carried out for the employees concerned. 

The elimination of employee tax write-offs and a one-percentage-point rise in the health insurance payroll tax from the start of 2012 has reduced the net pay of Hungarians who earn less than gross monthly HUF 216,806 from a year earlier.

The government said earlier that the state will ensure that affected public-sector employees will not see their net wages fall. And it asked business sector employers to carry out the necessary wage increase. Under support available from the start of 2012, if employers increase wages by more than 5% in the income bracket of under HUF 216,000, the state will fully refund the cost in excess of the 5% rise from the social contribution tax. 

Under a recently approved additional support scheme, worth HUF 21 billion , employees who cannot cannot carry out the minimally required 5% wage rise, may apply for a reduced limit allowing them to finance only 2% of the rise from their own resources.

Employers must raise the wages of at least two-thirds of their affected employees by 5% to prevent their exclusion from public procurements and government support for two years. 

National Economy Minister György Matolcsy said earlier in February the government projects to spend a total of HUF 130 billion from the central budget on wage compensation.