Slovaks earned more than Hungarians and Poles last year, according to Eurostat

Slovaks' relative incomes may be higher than was suggested by a recent analysis by tax advisory firm Forvis Mazars.

By: sme.sk

Nov 08 2024
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Slovaks earned more than Hunga

In August, an analysis by Forvis Mazars, a tax advisory firm, caused a stir by claiming that post-tax wages in Slovakia are the lowest among the Visegrad Group (V4) countries. However, the reality is more complex, the Denník N daily reports.

Forvis Mazars analysed net wages in private firms, thereby excluding over 400,000 Slovak public sector employees, who generally earn higher salaries. Additionally, the analysis only considered single individuals without children. Economists, however, tend to prefer using gross wages for international comparisons, as they are not affected by factors like child tax credits. These provide a different perspective.

Wednesday’s Chart of the Day, based on Eurostat data, compares the average gross annual wage in European Union countries in 2023. In Slovakia, after adjusting for full-time positions, this figure reached €19,001, or €1,583 per month, making it the sixth-lowest wage in the EU. Among the V4 countries, Hungary and Poland had lower wages than Slovakia; Romania, Greece, and Bulgaria also lagged behind.

Average full time adjusted salary per employee. (Source: Eurostat )

According to Martin Šuster, a member of the Council for Budget Responsibility, an independent body set up by law to monitor and evaluate the fiscal performance of the Slovak Republic, this data better illustrates Slovakia’s standard of living compared to the rest of the EU than the figures from Forvis Mazars' analysis. While Slovakia has higher income tax rates on earnings, the difference isn’t so large as to leave net wages trailing behind Hungary.

“[Slovakia's position] in Eurostat’s ranking is not something we should brag about, but the notion that we are at the bottom is overly pessimistic,” he says.

Eurostat also publishes data on net wages, but these are divided into over ten categories based on household type and the gross income of its members relative to the economy-wide average. According to this data, net wages in Slovakia were higher than in Hungary in most cases last year, and in some higher-income groups, they even surpassed Poland.

Comparing wages internationally is further complicated by varying price levels in different countries. Although this distortion can be removed by adjusting data to purchasing power parity, domestic economists have long argued that Eurostat overestimates Slovak prices, leading to the impression that households can afford less from their pay.

Purchasing power parity GDP statistics show that Slovakia became considerably poorer around the middle of the last decade. Despite known flaws, these data points are often cited in discussions about how much Slovakia’s convergence with the EU average slowed under Smer’s governance.

But VÚB Banka economist Michal Lehuta notes that, of several indicators of living standards, gross wage is the most useful. Last year, it rose by 9.9% and, for the first time in history, exceeded 50% of the European average.

According to economist Marián Kočiš at Slovenská Sporiteľňa, Slovakia’s largest bank, moving towards new technologies and a knowledge-based economy is key to further wage growth. This would enhance labour productivity, which, after an increase during the pandemic, has begun to decline again.

“If our products or services become more sophisticated, we could charge more for them, which would positively impact the nation’s overall wealth and prosperity,” said the analyst. “In turn, this would create room for further wage increases.”