Parliament approved a two-percentage-point reduction in the payroll tax to 17.5%, effective July 1, 2019. The amendments reducing the tax were passed in an expedited procedure with a vote of 160 for, 1 against and 5 abstentions. The reduction is one of several the government has initiated in recent years, as outlined in an agreement reached with employers and unions late in 2016 linking the cuts to wage rises. Under the agreement, the payroll tax was cut from 27% in 2016 to 22% in 2017 and 19.5% in 2018. At the same time, the minimum wages for skilled and unskilled labourers were raised to double digits.
The agreement stipulates that from 2019, the payroll tax will be reduced a further four times by two percentage points on each occasion. The cuts are timed from the start of the second quarter of each calendar year as long as the gross average private sector wage rises at least 6% year-on-year in the first quarter of the given year.
Private sector wages rose by 11.8% year on year in Q1 2019. The increase was on the back of an 8% rise in the minimum wage as well as a labour shortage. The payroll tax cut for this year was expected to come into force from July 1, according to an explanatory memorandum attached to the 2019 budget bill.