In 2017 payroll taxes will be cut by 5% and by a further 2 percentage points the following year.

Speaking after the meeting, Varga noted that the government had also committed to cutting the corporate tax rate to 9% next year.

The corporate tax rate now stands at 10% on a tax base up to 500 million forints and 19% above that. Varga said the government’s measures to improve competitiveness and raise wages provided a foundation to achieve stronger economic growth over the 2-3% rate at present.

László Kordás, the head of unions association MaSzSz, said today’s agreement would raise the minimum wage to the subsistence level by 2018. Unions want to see wage growth for pay categories over the minimum wage in the double digits, too, he added.

Péter Futó, chairman of employers’ association MGyOSz, said the minimum wage increases would be a big burden for businesses, but added that they would contribute to improving the country’s competitiveness as well as preserving the pool of skilled labourers.

Varga said the government hoped to submit a bill on Wednesday to cement the deal into law. Parliament is expected to fast-track the bill, he added.

He acknowledged that the measures would require a recalculation of inflation forecasts, but said those, as well as other macroeconomic parameters that need adjusting, would not be changed in next year’s budget. The government can amend the projections next March, if necessary, he added.

The National Bank of Hungary said in its latest quarterly Inflation Report, released in September, that inflationary pressure from rising household consumption resulting from higher wage growth would “remain moderate”, according to the baseline project.

However, the NBH also considered an alternative scenario in which pay rises are higher and add to household spending. In this scenario, achieving the 3% medium-term inflation target would be “ensured by a monetary policy that is tighter than projected in the baseline scenario”, the central bank said.

Ruling Fidesz group leader Lajos Kósa said that as Hungary is getting stronger, efforts to close the gap between average wages in Hungary and the European Union should start. The unprecedented rise in the minimum wage announced on Tuesday will promote competitiveness and help keep workers in Hungary.

The minimum wage will have increased more in four years than during eight years of Socialist government, he added. Kósa said that once wages are increased, pensions can also become higher. The opposition LMP said that “there is no good wage deal without fair taxation”.

LMP co-leader Bernadett Szél said that the planned wage hikes and reduced corporate tax would not help low earners cross the poverty line. She insisted that the talks should have been aimed at a more equitable tax system rather than focussed on compensating employers for the wage hike.

She also pointed out that reducing the corporate tax had “nothing to do” with minimum wages and suggested that it was “another gift in the hundred billion forint range” to foreign companies.

The Socialist Party accused ruling Fidesz of working to the benefit of international companies. In a statement, the Socialists said that the government should seek to reduce the burden on small and mediumsized enterprises rather than grant tax cuts to large firms.

“It is the top 10-20% only that benefits from the economic policies of the Fidesz elite,” the party said in a statement and insisted that people living on wages and salaries are “taxed to death” while their tax forints are used to “reduce the taxes of the rich and multinationals”.

They insisted that “in no other country does the state collect over one third of the minimum wage”.

Republished with permission of Hungary Matters, MTI’s daily newsletter.