IEER Monthly Bulletin of Economic Trends
The joint research efforts of SME Panorama, the Monitor, the Economic and Enterprise Research Institute (GVI) and the Volksbank have set a target of making available, on a quarterly basis, corporate empirical surveys based on the study and analysis of Hungarian small and medium enterprises (SMEs) -- their financial position, prospects and the factors affecting their businesses. A government proposal to the Hungarian National Assembly in 2011 substantially changed personal taxation in several important ways. The expectation was that no one would be worse off with the introduction of the new system; however, several studies pointed out that not everyone will be positively affected by this change. The aim of the MKIK GVI study is to illustrate the proportion of SME workers adversely affected by the introduction of a flat personal income tax in 2011, as well as show which employees were most affected by the law. A third aspect will be an examination of how the companies responded to the changes in personal income, that is, what adjustments were observable until April 2011, when the survey was completed.
The results show that the gross wages of employees at 35 percent of the companies surveyed has not changed in 2011, and declined for 1 percent of SMEs. A majority of businesses in turn raised wages: 27 percent of companies raised wages by less than 5 percent while 36 percent raised wages over 5 percent. The wage rate together with a company's business situation and outlook for the future are significantly related: a favorable business outlook means that a higher wage increase will be more likely. The results found that 82 percent of SMEs have workers whose real incomes fell as a result of the tax system changes introduced in 2011. For those businesses that are entirely Hungarian owned an average of 53% of workers are adversely affected by the new income tax law, while at entirely foreign-owned companies it’s only about 36%.
The changes in personal income tax rules may lead to the beginning of different adaptation strategies by companies. 52 percent of companies claim to fully compensate workers for lost wages, while another 19 percent claim to only partially offset lost wages. The remaining 29 percent, however, are unable to compensate their workers at all for the loss of income. Thus, companies in a favorable business position are able to wholly or partially offset the loss of wages, while those in an unfavorable financial situation are typically unable to compensate their workers for a loss of income.