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Government ponders payroll tax cut

September 8th, 2016

Two economists doubt that the government’s plan to reduce payroll taxes would help boost the economy and improve employment. 

The Hungarian government announced that it is considering the reduction of employer’s social security contributions in order to improve employment and boost growth. The details of the tax cut are to be worked out and announced later.

Magyar Hírlap’s László Bogár fears that payroll tax cuts would benefit multinational companies rather than Hungarian workers. The conservative economist notes that although they are perceived as taxes paid by the employer, social security contributions should be considered as wages, as they are used to secure employees’ pensions and health care. Thus social security contribution cuts would harm the long-term interest of generally underpaid Hungarian workers, Bogár claims. In conclusion, he recommends that those foreign firms that find Hungarian payroll taxes excessive should leave the country and do business elsewhere.

On Portfolio, economist István Madár points out that payroll tax cuts may prove less effective in boosting employment than the government hopes. The measure is designed to reduce unemployment, but Hungary is increasingly facing a shortage of manpower (see BudaPost August 17), which could become even worse if employers are to pay lower taxes. As employers are unlikely to spend the saved taxes on wage increases, the payroll tax cut might not even increase market demand, Madár remarks.

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