Hungarian PM promises unprecedented wage boom

The Hungarian government, corporate representatives and employee representatives in the Permanent Consultation Forum of the Business Sector and the Government (VKF) are currently working on a 2-3-year wage agreement.

Negotiations are progressing very well. The parties have agreed that the minimum wage should reach 50% of average (regular) gross earnings by 2027, and the Ministry of National Economy has also prepared a background calculation showing that the minimum wage would need to increase by 12% per year on average to reach the target.

Economy Minister Minister Márton Nagy has repeatedly said that there could be an 11-12% increase in the minimum wage over the next three years. He also added that this would make the €1,000 minimum wage achievable by 2028.

In contrast, Prime Minister Viktor Orbán gave a completely new calculation in an interview with public radio MR1 on Friday morning.

We want to reach the minimum wage of 1,000 euros and raise the current average wage of around 600,000 forints to 1 million forints. This is possible within two to three years,

he said. Subsequently, he posted the goal of reaching a HUF 1 million gross average wage on his Facebook page too.

This is a completely new approach compared to the one outlined at the VKF meetings and by the Economy Minister, who wants to reach the minimum wage of 1000 euros (HUF 400,000 at current exchange rates) by 2026-2027 instead of 2028, which implies a much faster pace of wage increases.

It means that the minimum wage should not increase by 12% per year, but by 15-23%. This is a substantially greater hike than the agreement outlined at the VKF meeting.

It's worth noting that working with the Prime Minister's numbers, the 50% rule doesn't work either. The average salary of HUF 1 million would imply an average regular (ex-bonus) salary of around HUF 900,000. This would require a minimum wage of HUF 450,000 under the 50% rule.

The impact of the rapid hike to the minimum wage is also reflected in the average wage. For the time being, only the wage data for the first half of this year are available (with an average gross wage of HUF 635,000), which implies an increase of 16% or 25%, depending on whether the HUF 1 million is to be reached in two or three years.

And if we take the average wage of HUF 600,000 mentioned by the Prime Minister, we would need an increase of 19-29% to reach HUF 1 million.

What is certain is that we have never heard so many wage calculations from government officials before the wage agreement as we have this year. For the time being, each estimate results in a different wage trajectory, so the VKF negotiations are attracting ever greater attention. 

It is also clear that, apart from the shock of the regime change, we have not seen such rapid wage growth in Hungary in more than 30 years. Wage increases of 20-25% were typical of the few years after the change of regime, but then rate of inflation was the same. 

If wage increases were to be that drastic, there would certainly be two consequences:

• businesses would go bust en masse, as many Hungarian SMEs would not be able to pay these high wages, and
• price-wage spiral, as the population would immediately feel the impact of a large wage increase in consumer prices.

Cover photo: MTI Photo/Zoltán Fischer