Latest data from the Croatian Bureau of Statistics shows a slowdown in wage growth, while the public questions whether changes to the tax system could boost net incomes.
Salaries of employees in Croatia continue to rise, as confirmed by the latest data from the Croatian Bureau of Statistics (DZS) for May. However, the pace of this growth is slowing, and the key question that arises is whether the Government will, from 2027, make changes to the tax system, specifically by increasing the basic personal deduction, which would directly affect net amounts on payslips.
According to the latest available data, the average net salary for May was 1,552 euros. Compared to the same month last year, this represents a nominal increase of 7 percent. After accounting for inflation, the real growth was 1.7 percent. Cumulative data for the first five months of this year shows that the average net salary was 1,540 euros, a nominal increase of 7.8 percent, or a real increase of 2.4 percent compared to the same period last year.
The median net salary, which more accurately reflects the earnings of most workers as it represents the amount below which half of employees earn and above which the other half earns, was 1,324 euros in May. Its annual growth was more pronounced than that of the average salary, at 8.3 percent. From the beginning of the year to the end of May, the year-on-year growth of the median net salary reached 8.6 percent.
Interestingly, gross salaries are growing slightly faster than the net amounts that employees actually receive. For instance, the average gross salary for May rose by 7.9 percent nominally on an annual basis, and by 2.6 percent in real terms. For the first five months, nominal growth of gross salaries was 8.8 percent, and real growth was 4 percent. An even larger difference is visible with the median salary, where the gross amount in the first five months increased by almost 10 percent, while the net amount grew by 8.6 percent. This discrepancy has been attributed for years to the relative increase in the tax burden on income.
The basic personal deduction was last increased at the end of 2024 for 2025, when it rose from 560 to 600 euros, and this amount remains in effect this year. Given the two-year stagnation of this amount and the elevated inflation during that period, the public expects that the Government might decide to increase it for 2027.
Deputy Prime Minister and Minister of Finance Tomislav Ćorić has not yet given a definitive answer. He has not explicitly announced an increase, but he has not ruled out the possibility either. He emphasized that the decision will be made only in the autumn, after a detailed analysis of economic indicators for the first three quarters, which will serve as the basis for new macroeconomic projections and planning of the state budget for the next year.
In addition to salaries themselves, various tax-free payments are becoming an increasingly larger share of employees' total income. According to data from the Tax Administration, last year the total amount of such payments exceeded 2.93 billion euros, an increase of almost 11 percent compared to the year before. In the first six months of this year, employers additionally paid out 1.34 billion euros to employees in this manner.
DZS data shows that alongside the May salary, employees in legal entities received an average additional tax-free payment of 121 euros per employee. In the first five months of this year, the average monthly tax-free payment was 133 euros, which is 8.6 percent more than in the same period last year. When considering only those employees who actually received such payments, the average monthly supplement was close to 200 euros, or 7.2 percent more compared to last year.
Although tax-free payments are currently a popular and tax-advantageous form of rewarding employees, economists warn that they carry certain drawbacks in the long term, primarily because pension contributions are not paid on them, which could negatively affect the amount of pensions in the future. The prevailing opinion is that a more sustainable long-term solution would be a systematic reduction of the tax burden on labor. In any case, a significant increase in tax-free payments is expected again this year, especially in the last quarter, which in recent years accounts for about 40 percent of the total annual amounts.
