Montenegro’s proposed Euro Model wage and tax reform could reduce revenues in some northern municipalities by 10%-30%, according to estimates raised during consultations with businesses and local governments. The government plans to introduce minimum net salaries of €1,000, €1,250 and €1,400 from January 2027, depending on qualification level, alongside changes to payroll taxes and contributions designed to limit increases in employers’ total labour costs.
The 10%-30% figures are consultation-stage estimates rather than official government projections. Municipal representatives are seeking guarantees that potential losses would be compensated through the state budget or changes to the distribution of national tax revenues. Northern municipalities generally have smaller tax bases and greater reliance on transfers and shared revenues than Podgorica and coastal municipalities. Lower recurring income could affect spending on roads, utilities, social services and capital projects.
Businesses seek phased implementation
Employers have proposed postponing full implementation, giving companies more time to adjust payrolls, prices, staffing and investment plans. The government has maintained its intention to begin the reform in 2027. Business organisations have not formally endorsed the package. Around 100 company representatives participated in the latest consultations, calling for detailed calculations by sector and company size before legislation is finalised.
Small and medium-sized businesses have warned that higher labour costs could lead to reduced hiring, layoffs or closures of marginally profitable operations. Tourism, hospitality, retail, transport and construction are particularly exposed because of their large numbers of workers near the lower end of the wage scale.
Wage increases could affect broader payroll costs
Companies also need to maintain wage differences between entry-level workers, experienced employees, supervisors and higher-qualified staff. As a result, an increase in minimum salaries can push wages higher across an organisation. If payroll-tax reductions substantially offset higher net salaries, employer costs could remain manageable. If the offset is incomplete, businesses could respond through higher prices, lower margins, slower hiring or increased automation.
Tourism companies may be able to transfer part of the additional cost to foreign visitors, although competition from Croatia, Albania, Greece and other Mediterranean destinations limits pricing flexibility. Retailers face domestic purchasing-power constraints, while exporters have limited ability to pass higher costs to international markets.
Local finances add to fiscal risks
The government argues that higher incomes could stimulate consumption and generate additional VAT and other tax revenue. However, payroll-tax revenues could fall before higher consumption and formal employment compensate for the decline. Northern municipalities are particularly exposed because their own-source revenues are relatively limited, while property markets, tourism taxes and development charges generate stronger revenues in coastal areas.
A 10%-30% revenue reduction would be significant even if temporary. Compensation could protect municipalities but shift the cost to the central budget, adding to the fiscal impact of the reform. Montenegro is also preparing major investment programmes in roads, railways, energy and water, alongside EU accession spending. The government expects the fiscal deficit to rise temporarily before returning toward its medium-term target.
