Will the Government Increase the Personal Deduction in 2027?

The question of increasing the basic personal deduction for 2027 is becoming increasingly prominent in public discourse, particularly in the context of continuous wage growth and its tax burden. Although Deputy Prime Minister and Finance Minister Tomislav Ćorić has not directly announced changes, he has not ruled out the possibility of discussing it in the fall, ahead of the drafting of the state budget proposal for the next year.

The last increase in the basic personal deduction occurred at the end of 2024, when it was raised from €560 to €600, which remains the amount for 2026 as well. Given that inflation has remained elevated over the past two years, it is realistic to expect that the deduction for 2027 could be adjusted again. However, Ćorić remains cautious for now, stating that the decision will be based on an analysis of economic indicators for the first three quarters.

Wages Are Rising, but So Is the Tax Burden

According to the latest data from the Croatian Bureau of Statistics, the average net salary for May 2026 was €1,552, a nominal increase of 7 percent compared to the same month in 2025, while the real growth, adjusted for inflation, was 1.7 percent. In the first five months of this year, the average net salary reached €1,540, recording a nominal jump of 7.8 percent and a real increase of 2.4 percent compared to the same period last year.

The median net salary, which indicates that half of employees earn less than that amount, was €1,324 in May, up 8.3 percent from the previous year. Looking at the start of the year, the year-on-year growth of the median net salary by the end of May rises to 8.6 percent. Interestingly, gross salary amounts are growing faster than net amounts. For example, the average gross salary in May is nominally higher by 7.9 percent, and its purchasing power increased by 2.6 percent. In the first five months, gross salaries nominally jumped 8.8 percent, and in real terms by 4 percent.

This gap between the growth of gross and net salaries has been present for several years and points to an increased tax burden on labor. Some employees with the lowest incomes, as their wages rise, fall into the tax bracket trap, while those with higher salaries are also affected by a higher income tax rate, further emphasizing the need to align the personal deduction and tax brackets with inflation.

Tax-Free Benefits as a Supplement to Salaries

In addition to salaries, tax-free payments constitute a significant share of employees' income. According to the records of the Tax Administration, in 2025, the total amount of such payments exceeded €2.93 billion, an increase of nearly 11 percent compared to the year before. In the first six months of 2026, employers paid out €1.34 billion tax-free to employees. Although this is less than half of last year's total, it is expected that the annual amount will be even higher, given that the most generous payments traditionally occur in the last quarter, which in recent years has accounted for about 40 percent of total annual payments.

In May 2026, in legal entities, the average tax-free payment per employee was €121, while in the first five months, that average was €133, up 8.6 percent from last year. If we look only at those workers who actually received such payments, the monthly amount rises to nearly €200, which is 7.2 percent more than the previous year.

Although tax-free benefits are useful in the short term for increasing net income, the prevailing opinion is that, in the long run, a systematic tax relief on labor would be preferable, as lower pension contributions can affect the amount of future pensions. It remains to be seen whether, in the fall, alongside the personal deduction, there will also be discussions about increasing the limit for tax-free payments.