Governments raise minimal wages to patch up holes in the budget.
The state-controlled minimal wage has been increased from 201 euros per month in 2010 to 330 euros in 2019. But the real winner is the budget because they now collect 601 euros per month instead of 315 in 2010.
The tax content of the minimal wage has grown by nearly 200%. The money the worker takes home has only grown by a third.
Minimal wage has started with the explicit goal to keep women and other subhumans away from paid employment – and thus neatly dependent. After all, who would pay a woman as much as to a real person, right?
It was quickly misunderstood and embraced as a welfare tool by its misguided recipients – and a virtue signaling exercise for gooodboys and goodgirls.
The only one who benefited from it had always been the state. Either by excluding unwanted groups of humans of the workforce, or by gaining more in tax revenues.
By setting both the wage level and its tax content the state essentially created a tool to adjust its annual tax revenues as the need arises. And boy does the need arise… In Hungary it is not even a secret. Every time the parliament needs something to plug a budget revenue hole, they reach for the minimal wage. Raising the minimal wage means raising the expected tax revenues from it. And if you look at the numbers, you will see that it was indeed only the budget that benefited lately. By assuming that the minimal wage jobs won’t disappear (despite the dismal lack of productivity growth) parliaments can pass budgets pretending that the deficit is sustainable.
There is also the poor tax morale in the country. With a 50% personal income tax wedge, neither the employer nor the employee is terribly motivated to admit to a higher than necessary wage being paid. Not only does the state take away half the money spent on an employee under various labels, there isn’t even a pension obligation to be paid in exchange. (By changing the name of ‘pension contribution’ to ‘pension tax’ the government has cleared the way for not paying pensions, right when they confiscated the private pension funds’ wealth in 2010.)