Economy 31 October 2024, 9:20am

Hungarian employers cry out against massive wage hike plans in light of poor GDP data

Portfolio

The Hungarian government would increase the minimum wage by 12% next year, but a Vice-President of the National Association of Employers and Industrialists (MGYOSZ) said that the poor GDP data would allow only for a much smaller increase.

Due to the poor GDP data, there is no possibility of a minimum wage increase above 10% next year, Ferenc Rolek, the Vice-President of the National Association of Employers and Industrialists (MGYOSZ), told commercial broadcaster RTL late on Wednesday.

In the third quarter of 2024, Hungary's gross domestic product contracted by 0.7% both in quarterly and annual terms, the Central Statistical Office (KSH) reported. The consensus forecast of analysts polled by Portfolio was -0.2%, meaning that the market was expecting a much milder contraction.

given that output shrank in two consecutive quarters, hungary is back in a technical recession.

The anaemic GDP data also pains the corporate sector. According to Rolek ,

the economy's performance justifies an average wage increase of around 6% next year, which could be slightly exceeded by a rise in the minimum wage.

MGYOSZ, on the other hand, sees no chance of a 10% increase. However, workers' organisations support the government's target of a 12% increase in the minimum wage by 2025.

Concerns about the government's wage hike plans

Earlier this week, the MGYOSZ asked the government for a minimum wage increase of 1% per year for three years if the minimum wage is to be increased significantly by 12%, as planned by the Economy Ministry.

According to a statement issued by the association on Monday, this would "significantly exceed the cost-bearing capacity of the corporate sector (especially those producing for export or facing strong import competition domestically)". They argue that a rapid wage increase would threaten jobs, accelerate inflation and weaken the forint exchange rate.

Economy Minister Márton Nagy said it is a realistic goal to raise the gross monthly average wage to HUF 1 million and the minimum wage to EUR 1,000 by 1 January 2028.

This, he said, will require major economic changes in the coming years. According to a statement by the ministry, "the fiscal position will continue to improve in the coming years as the economy expands. This process opens up the possibility of a further reduction in the tax burden on employers in the coming years, which would allow the tax wedge to fall to a lower level".

"Forced wage convergence will not happen without public support. We are also demanding intervention and a reduction in the tax and contribution burden, as was the case under the previous long-term wage agreement between 2017 and 2022. At the end of the negotiations, the social contribution tax was reduced by 2 percentage points for real wage increases above 5%," László Perlusz, Secretary General of the National Association of Entrepreneurs and Employers (VOSZ), told Portfolio after the negotiations.

The Minister of National Economy said that there is no fiscal room for such assistance next year, but if economic growth is above 3% in 2025, we can revisit the matter,

Perlusz stressed.

So for the time being, it seems that although MGYOSZ is asking for a reduction in the burden every year in exchange for the 3-year agreement, this will certainly not be possible next year.

The employers' association supports taking the minimum wage to 50% of regular gross average earnings by 2027, as the government wants. However, they believe that if the minimum wage were to increase by 12% each year, it would eventually be well above the 50% target. And companies would not be able to afford that.

We support the conclusion of a multiannual wage agreement, but it must be done in a parametrized way that takes into account the performance of the economy, its efficiency and inflation,

wrote the MGYOSZ.

László Perlusz has identified similar risks. "A thousand companies disappear every month. Between September 2022 and September 2024, the number of registered partnerships declined by 23,000. Many businesses can't keep up with the pace. This is another reason why we need to be more cautious about next year's wage increases, because nobody wants mass redundancies and company bankruptcies," said László Perlusz.

Employers have indicated that they are also open to a 3-year wage agreement because it would make economic planning more predictable.

At the same time, employees would insist on a double-digit wage increase already next year, and are open to different pay rises in 2026 and 2027, depending on the level of the increase.

Our union's position remains that we support a 10% increase in the guaranteed minimum wage and a 12% increase in the minimum wage by 2025,

said Imre Palkovics, President of the National Federation of Workers' Councils (MOSZ), referring to the fact that the government calculates that the minimum wage would increase by 12% and the minimum wage by 10% annually in the coming years.

"We believe that these increases can be economically justified. "To do this, we need to increase the productivity of firms, and the government's various action plans will hopefully facilitate this. However, if the wage increase targets are not met in the next three years, we are convinced that companies will face an even higher outflow of workers and emigration from the country," stressed Palkovics.

The parties will return to the negotiating table on 11 November to discuss wage increases for the coming years.