The lower effective income tax rates have encouraged the rewarding of workers, which indicates that further income tax cuts as part of a comprehensive tax reform would create room for faster wage growth, the Croatian Employers' Association (HUP) said in its weekly publication.

Employers noted that in 2022 gross wages in Croatia rose by 8.3% in nominal terms, but fell by 2.3% in real terms, while net wages increased by 7.4% in nominal terms and declined by 3.1% in real terms.

An international comparison puts Croatia in a more favourable context as the the total income growth in Croatia in 2022 of 9.8% exceeded the EU average of 7.2% and the real income decline of 0.9% was milder than the EU average of 2%, HUP said.

In the last five years, total income in Croatia has grown by an average of 4.4% annually (1.2% in real terms), above the EU average 3% (0.2% less in real terms), while the growth of the Croatian unit labour cost is three times slower than the EU average (+4.3% against +12.5%).

HUP believes that various modalities of tax-free payments to workers contribute to relatively faster growth of workers’ total income and that a good many of them are included in the government measures to protect households and businesses from the impact of the energy crisis.