Hungarian government to reshape minimum wage: Major changes by 2027

The Hungarian government is considering significant amendments to wage policies that could drastically alter the country’s minimum wage system, according to insider information obtained by Index. Although no formal agreement has been reached, two key regulatory changes are expected. These could potentially increase the minimum wage to 50% of the average wage by 2027. The National Economy Minister, Márton Nagy, had previously hinted at such a plan, and it now appears to be taking shape.

According to Index, negotiations are ongoing regarding next year’s minimum wage and the guaranteed wage minimum, but specific figures have yet to emerge from either employers or employees. Officially, about one million workers currently earn either the minimum or guaranteed wage in Hungary.

Hungary ahead of regional neighbours concerning effective minimum wage

In recent comments, Márton Nagy addressed concerns that Hungary ranks near the bottom of the European Union’s minimum wage rankings, emphasising that this comparison fails to account for the country’s unique wage system. Unlike other EU countries, Hungary also has a guaranteed wage minimum, which he claims offers a more accurate picture when combined with the standard minimum wage. According to Nagy, Hungary’s effective minimum wage is HUF 306,000 (EUR 777), placing the country 17th in the EU, ahead of regional neighbours like the Czech Republic, Slovakia, Romania, and Bulgaria.

Despite these relatively favourable standings, Nagy pointed out the need to narrow the gap between the minimum and average wages.

The government plans to raise the minimum wage to 50% of the average wage, with adjustments occurring in stages, and aims to achieve this goal by 2027.

Future of guaranteed wage minimum not yet clear

The rationale is to help low-income workers get closer to the national average, underlining the increasing importance of wage policy within broader economic discussions. Index reports that current talks have stalled due to disagreements over the future role of the guaranteed wage minimum. The government is weighing whether sectoral wage agreements could potentially take over this role, but for now, no comprehensive legislative overhaul is expected.

One significant change that could come soon is a government decree making the Versenyszféra és a Kormány Állandó Konzultációs Fóruma (Permanent Consultation Forum of the Competitive Sector and Government) the official body responsible for determining future minimum and guaranteed wages. Previously, this body played an advisory role, but it may soon have a formal mandate. Additionally, from 2025 onward, the minimum wage will be adjusted in relation to 50% of the average gross wage.

Both employers and employees are reportedly pushing for a long-term wage agreement, possibly covering a three-year period. The timeline for starting negotiations could become more structured, with the gross average wage of the four previous quarters serving as a reference point for minimum wage discussions. However, flexibility will remain a key feature of the negotiations, allowing adjustments based on macroeconomic data. Both sides agree that wage increases should not lead to job losses, and any agreement must also account for social considerations, especially for the lowest earners.

Hungary on the verge of an economic upturn?

Higher wages not only impact individual consumption but also force companies to become more efficient and invest in development to maintain profits. This high-pressure economic approach has been a hallmark of recent Orbán governments, and Prime Minister Viktor Orbán recently stated that Hungary is on the verge of an economic upturn. Significant wage hikes, alongside investment-driven growth, are seen as central to this recovery.

As the wage negotiations continue, the Hungarian Central Statistical Office (KSH) reported that, as of June 2024, the gross average wage for full-time employees was HUF 642,000 (EUR 1,633), while the net average wage stood at HUF 442,000 (EUR 1,124). These figures mark a year-over-year increase of over 13%, and the rise in real wages has also been significant.

Ultimately, the minimum wage has a broader influence on the economy, affecting both the low-wage workforce and other wage categories. A substantial rise in the minimum wage could help reduce wage inequality, and in some cases, encourage the formalisation of wages, curbing the practice of under-the-table payments.

12% potential wage increase expected

Market expectations suggest a potential wage increase of around 12%, in line with government projections. While attention often focuses on the minimum wage, the guaranteed wage minimum is even more crucial, impacting a much larger segment of the workforce and playing a vital role in shaping Hungary’s overall wage structure.

As Hungary seeks to close the wage gap with its European neighbours, the success of these wage policy changes will be critical to retaining workers and ensuring sustainable economic growth. However, experts warn that setting the minimum wage either too high or too low could have negative consequences, making a balanced and thoughtful approach essential.