Expected effects of the single rate income tax on employment in agriculture
Horváth, Gábor – Paragi, Márton
Keywords: single rate income tax, employee, employer, employment
The opinions and assessments published with regard to the changes to the income tax system in 2011 are extremely one-sided. The changes and their results are described with a focus on individual taxpayers, with the outcome of the assessment being based on the comparison of positive and negative effects on individuals. At the same time the effects of the changes on economic policy are ignored. The impact of the changes on the various sectors are not quantified and neither are macro-economic effects summarised and presented. Changes in the income tax system lead to a drop in net wages, which employers need to compensate. Employees for whom the changes are advantageous, however, can enjoy their increased net wages without restriction. On an industry level this means that while employees benefit from the result of the new tax measures, the costs of the measures are borne by the sectors affected and the employers therein. These industry-wide effects are critical for the competitiveness of the Hungarian national economy and for economic growth.
It follows that tax refund should not be phased out completely after the single rate income tax is introduced: the situation of the less skilled workforce, who are difficult to employ, will worsen, and the competitiveness of industries employing lower-wage workforce will be reduced due to the fact that in the next two years, the sectors will need to raise wages by nearly 30 percent in order to preserve the real wages of employees earning statutory minimum wages or guaranteed statutory minimum wages.