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Tax reform could open up space for faster wage growth across Croatia

Written by  Mar 18, 2023

Lower effective income tax rates encouraged additional remuneration for workers, which suggests that further income tax relief as part of the comprehensive tax reform would open up space for faster wage growth, claims the Croatian Employers' Association (HUP) in the weekly analytical publication Focus of the Week, reports HINA.

Employers remind that in 2022, gross wages across Croatia nominally increased by 8.3 percent, but in real terms fell by 2.3 percent, while net wages nominally increased by 7.4 percent, and in real terms fell by 3.1 percent.

Likewise, they say that the recently published data on the trend of the total income of employees in the EU give a somewhat more favourable picture compared to the narrower definition of wages, and in an international comparison they put Croatia in a more favourable context. Namely, the growth of total income in Croatia in 2022 of 9.8 percent exceeded the EU average of 7.2 percent, and the real decrease in income of 0.9 percent is milder compared to the EU average of two percent.

Income increases above EU average 

In the last five years, total incomes in Croatia grew by an average of 4.4 percent per year (1.2 percent in real terms), again above the EU average of three percent per year (and 0.2 percent less in real terms), while Croatian unit labour costs grew three times slower than the EU average (+4.3 versus +12.5 percent).

HUP believes that the relatively faster growth of the total income of employees in Croatia certainly contributes to numerous modalities of tax-exempt payments by employers to workers, and a good part of them are contained in the strong short-term measures of the government to protect the population and the economy from the consequences of the energy crisis.

In this year, HUP expects a rise in wages, or the total income of employees, of around seven percent, slightly above the inflation rate (6.5 percent).

In addition to the general need to retain quality employees in an environment of labour shortages, among the reasons for the relatively high rate of income growth, HUP counts the faster growth of wages regulated by collective agreements, a significant increase in the minimum wage (+12.2 percent in Croatia, and 10.8 percent in the EU- u) and a further increase in tax-exempt receipts.

According to the disproportionate growth of the minimum wage in relation to the nominal growth of the GDP, Croatia is almost ahead of the EU level, which is unsustainable, employers warn, pointing out that the need for wider tax relief for wages is all the stronger.

The Voice of Dubrovnik


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