Hungary’s personal income tax reform plans include lower taxes for minimum and median wage earners

In Hungary, the tax burden on wages has long been a central issue in economic policy debates, as for employees, it is not only their gross salary that matters, but above all how much of it actually remains in their bank account at the end of the month. Under the current system, employment income is subject to several different taxes and contributions. One of these is personal income tax, which in Hungary is currently set at 15 percent. In addition, employees must also pay an 18.5 percent social security contribution, which finances the pension system, health insurance and labour market benefits. However, the burden does not end there, as employers also pay taxes on wages. Currently, employers are subject to a 13 percent social contribution tax in the case of employment.

Within this tax system – which is fundamentally uniform regardless of wage level – particular attention has been drawn to the plan of the new government to reduce personal income tax on the minimum wage from 15 percent to 9 percent. In practice, this would mean that the lowest-paid workers could take home noticeably higher net wages while their gross salary remained unchanged. In addition, the new government also plans to reduce personal income tax for those earning below the current median wage, which is approximately HUF 625,000 gross per month. The median wage represents the midpoint of the earnings distribution: it shows that half of workers earn less than this amount, while the other half earn more. This is an especially important indicator as it often reflects the “typical” income situation more accurately than the average wage, which can easily be manipulated by the highest earners.

The economic logic behind the proposal is that increasing the income of lower earners may not only be socially beneficial, but could also stimulate domestic consumption. This may be particularly important in an economic environment where inflation and rising living costs disproportionately affect lower-income groups. If minimum wage earners are able to take home more money, it could improve their standard of living in the short term and create more favorable social conditions.

At the same time, the proposal also carries potential drawbacks. Reducing personal income tax would mean lower state revenues, which would likely need to be compensated for in some way. This could happen through higher taxes elsewhere, spending cuts, or a larger budget deficit. It is also uncertain to what extent granting substantial tax relief only for minimum wage earners might distort the wage structure or encourage the administrative practice of formally keeping wages at minimum wage levels. Over the longer term, a more differentiated tax system could also make the current singular-tax model more complex.

For now, the planned reduction of personal income tax remains a political concept rather than a concrete legislative measure. No official draft legislation is currently known regarding its exact implementation, timeline or the final structure of tax brackets and tax-base allowances. Nevertheless, since personal income tax directly affects broad segments of society and carries major social significance, it is likely that tax system reform will play a prominent role among the first economic policy measures of the new government.