Romanian minimum wage will most likely surpass the Hungarian one by the beginning of next year. It is mostly a question of: by how much? The final result still depends on what agreement the employees and employers can make in Hungary. The step that the government takes can be the decisive factor in this question.
So far the negotiations concluded that the minimum wage for next year will depend on the inflation rate predicted for next year. This means that the minimum wage will increase by 11.5-17 percent, says mfor.hu. Employers also want the social contribution tax to further decrease from the current 13 percent. Despite the uncertainties, something is already clear: the Hungarian economy is not performing well.
The best possible scenario would be a 17 percent raise, which would mean that the net monthly minimum wage would be HUF 155,610 (EUR 381). Before 2018, the minimum wage in the region was relatively equal and Romania was lagging behind. Since 2018, Hungary started to fall behind in the race and the Romanian minimum wage got closer. The problem is that the forint has lost about 15 percent of its value in comparison to the euro. This means that even Romania will overtake Hungary.
In Romania, net wages constitute about 61 percent of the gross wages, while this rate is 66.5 percent in Hungary. However, the Romanian minimum wage will still surpass the Hungarian even in net terms. Romania’s net minimum wage is expected to grow to about EUR 388, while the Hungarian one will be EUR 381, in the best-case scenario. Despite the government’s energetic wage rises in Hungary, the result was the lagging behind of the Hungarian minimum wage compared to other countries in the region.
Losing the competition
Romania started from a lot more disadvantaged position and even they were able to outperform Hungary. The problem is further exacerbated by the rampant inflation in the country, which distorts purchasing power parity comparisons, as among the neighbouring countries Hungary has the highest inflation rate. This disparity is most likely caused by the single-rate tax system in Hungary. However, the same system works in Romania too, but there is a twist. From next year on, a small portion of the wage will be tax-free, helping the ones most in need.
In contrast to most practices, in Hungary, the government puts tax burdens on the lowest earners. According to the data from the European Commission, only Latvia and Bulgaria remain behind Hungary in terms of minimum wage. However, their annual growth is higher than that of Hungary.