HUF 400,000 minimum wage in sight, agreement on the Hungarian horizon

In addition to employers' and workers' organisations, this time the government was also present at the wage negotiations. Imre Palkovics, President of the National Federation of Workers' Councils, spoke about the preparations for a landmark wage agreement after Wednesday's talks.

"Although the government is still examining the budgetary implications, it is likely that an agreement will be reached to allow employers to give their employees an extra 100,000 forints in wages tax and contribution free, due to this year's extremely high inflation," he said.

"It would not have been technically possible to increase the minimum wage and the guaranteed minimum wage ex-post, which is why we propose this solution. The government has realised that in the case of tax-free wage payments, the budget does not lose income, but rather can earn extra revenue due to the VAT content if people spend their extra income on consumption at the end of the year," said Palkovics, explaining the essence of the proposal.

The HUF 100,000 payment is important because this year the wage minimum for skilled workers increased by 14% and the minimum wage was raised by 16%, while inflation will be close to 18% on annual average.

The VAT revenue from this year's extra wage payment would clearly benefit the budget, and the government could decide whether to accept it within weeks. Many businesses are likely to take advantage of this,

László Perlusz, secretary general of the National Association of Entrepreneurs and Employers (VOSZ)  confirmed the consultation on the end-year wage adjustment. However, the employers' organisation has been more cautious about next year's wage increase plans.

"We would wait for the 3rd quarter GDP data in mid-November to see if the economy is at least close to stagnation, because if there is a recession, it may not be good for small and medium-sized enterprises to see a 15% minimum wage increase and a 10% guaranteed minimum wage increase next year. So, the rate of this increase could be even lower," said László Perlusz.

if the hungarian economy did start to recover somewhat, then after next year's hike the minimum wage would rise to huf 266,000 and the wage minimum for skilled workers would go up to huf 326,000 from 1 january. the net value of the minimum wage would be up at huf 176,000 and that of the wage minimum at huf 217,000.

However, the planned wage increases of 15 and 10% would only be the first step in a wage convergence programme until 2027. It is also dependent on inflation and GDP growth whether by the end of the fourth year, 2027, the minimum wage should be raised to the HUF 350,000 to HUF 370,000 band, close to or possibly above HUF 400,000.

What is certain is that by 2027, the minimum wage and the guaranteed wage minimum will have merged. The "forced pace" of the wage increase programme must be decided by representatives of employers, employees and government because the EU requires that by 2027 the minimum wage should be 50% of the average wage and 60% of the median wage. It is also an EU directive that as many industry-wide collective wage agreements as possible should be in place within four years.

This is why sectoral dialogues would be brought back in areas where there are trade unions and employers' organisations,

Perlusz explained the inner works of the new regime. During these dialogues they would negotiate, for example, depending on economic strength, the minimum wage in the electricity industry, which would be higher than the minimum wage, but such negotiations would also decide on the minimum wage for commercial employees, he added.

It would be historic if we could agree on the new system around 20 November,

said Palkovics. Pay scale systems would be introduced in each economic area through sectoral dialogues. In the meantime, and every year thereafter, there would be an annual consultation between employers and employers and government representatives.

With the latest output figures for the third quarter due out on 15 November, employers, employers and government representatives now believe that an agreement could be finalised around 20 November, which will decide not only on this year's wage compensation and next year's wage hike, but also on the direction of wage increases over the next few years.

By raising the minimum wage to HUF 400,000 gross by 2027, it is by no means certain that it can be matched to half the average wage. If minimum wages increase significantly, companies will have to raise wages in the higher wage brackets as well, in order to avoid wage erosion, i.e. there will be no meaningful catching-up.

Moreover, large wage increases can have an inflationary effect, as firms often compensate for labour cost increases by raising prices. Currently, the minimum wage is barely 40% of the average wage, and has been between 38% and 42% over the last ten years.

So there is not much chance of reaching 50% in a few years. This would require a very modest increase in average wages, which is unlikely in a context of both labour shortages and higher than normal inflation (which will persist into next year).

The absurdity of the situation is that this would mean a doubling of the minimum wage compared to 2022, while the average wage would increase by just over 50%. In the last ten years, the average wage has never been raised by half as much as the minimum wage, but there have been instances where it has risen by more than the minimum wage.

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