The recent decision to increase the minimum wage and pensions in Serbia has been positively received by those with the lowest incomes. However, the move raises concerns among economists and business representatives about its economic impact. While the government seems to be aiming to boost personal consumption and support GDP growth ahead of possible elections, this comes at a time when GDP growth forecasts have been lowered.
The increase was not accounted for in this year’s budget. According to the law, the Social and Economic Council, consisting of government, union, and employer representatives, decides on the minimum wage. If they fail to reach an agreement, the government sets the wage independently. The last council meeting resulted in a planned 13.7% increase, with unions demanding 20% and employers 8%. At that time, GDP growth was projected at 4.5% and inflation at 3.5%, but current forecasts are lower.
Business leaders emphasize that the wage hike should not impose additional burdens on employers, many of whom are struggling financially. They suggest that any increase should be accompanied by reductions in taxes and contributions. Although the number of workers earning minimum wage has fallen from over 300,000 to about 95,000, many employees still earn salaries close to the minimum level.
The budget deficit for this year is projected at 3%, raising questions about how the government will finance the wage increases. There is concern that raising wages across the board could lead to higher inflation and reduce state revenue if contributions are cut. Economists also warn that less productive industries might be particularly affected and view the timing of the increase as a potential political strategy to gain voter support amid ongoing protests.
