As part of this week’s analysis, the Croatian Employers’ Association identified sectors where real productivity growth per hour worked since 2017 exceeds the EU average, namely ICT, tourism, construction, agriculture, and parts of the manufacturing industry. Unfavorable demographic trends in these sectors open up space for faster growth in employee earnings compared to the EU. Meanwhile, a ‘small’ problem is the tax wedge of 42.5 percent in 2022, which is among the highest in structurally similar economies in Eastern EU and even compared to some Western EU member states.
Due to strong wage growth and a decrease in the share of employees whose earnings were not subject to income tax, the tax wedge will also grow. Thus, with the increase in the minimum wage to €677 net, or €840 gross, income tax will be levied even on the minimum wage.
HUP therefore calls for an increase in the level of personal deductions to the amount of the minimum wage. With positive trends in public finances, as well as a series of positive ratings from rating agencies, which lead towards an ‘A’ credit rating as early as 2024, they emphasize that it is necessary to relieve middle and higher salaries in order to strengthen competitiveness in the EU market.
Employers for Lower Income Tax Rates
Non-taxable income cannot stimulate the employment of highly educated and well-paid workers, whose increased share in total employment must be one of the ‘guarantees’ for faster productivity growth in the economy.
