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Corporate tax cuts to compensate wage hikes

October 14th, 2017

A pro-government columnist explains that the government has to take cautious but nonetheless painful decisions to ease the burden on enterprises where wage costs have substantially increased lately as a result of the labour shortage in several professions.

In Magyar Hírlap, Gábor Putsay believes the main and immediate factor hindering growth in Hungary is the shortage of manpower in several branches of the economy. This is why wages increased by an average 40 per cent over the past seven years, and by 11 to 12 per cent this year alone. The sum of the social contributions employers pay (44 Forints for each 100 Forints of salary) has also increased and such swift changes are a threat to the price-competitiveness of Hungarian enterprises. The government has therefore reduced those social contributions from over 60 to 44 per cent so far and will cut them by another 5 points (to 39 per cent) from January next year. These taxes are meant to finance welfare services, the Public Health Service and old age pensions and therefore cannot be cut back abruptly. The cuts follow the increase in GDP and thus overall tax revenues, to keep public finances balanced, Putsay explains. He also remarks however, that while the shortage of labour is an increasing problem in western Hungary, in the eastern part of the country unemployment is still measured at 11 per cent.

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