László Domokos noted that the tax wedge in Hungary had been cut to around 45%, from well over 50% just a few years earlier, mainly as a result of the government’s agreement with employers and trade unions late in 2016 to cut payroll taxes while raising the minimum wage.

“The agreement sharply reduced the tax on labour businesses were required to pay last year and this year. It has brought us so far as to put the tax wedge of around 45% close to the European Union average, although it is still higher than in neighbouring countries.

I believe that the tax on labour can be reduced further, but in a targeted manner and while paying close attention to economic trends and the country’s burden-bearing capacity,” he told the paper.

Domokos urged caution when weighing the impact of VAT reductions. A small cut would produce a big budget revenue shortfall but have only a muted effect on consumer prices in the long term, he explained.

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