EU Commissioner Questions Hungary’s Tax Plans

by Ulrika Lomas, Tax-News.com, Brussels

01 July 2005

The European Union's Economic and Monetary Affairs Commissioner, Joaquin Almunia has criticised the Hungarian government after reports earlier in the week suggested that the government is planning to make considerable cuts in taxation, a move he warned would worsen the country's fiscal position.

"I was surprised last Monday when I listened to some new information talking about an announcement of new tax reform," Almunia stated.

He also commented that frequent changes in policy with regard to taxation made it difficult for the EU to judge the state of Hungary's finances.

On Monday, the Hungarian government proposed a five-year tax cut plan, which will cut the overall tax burden by a total of about 1 trillion Hungarian forints (EUR4 billion) between 2006 and 2010. These cuts will entail a reduction in the top rate of value-added tax to 20% from 25% and the top rate of income tax to 36% from 38%.

The announcement came days after Hungary's Finance Minister Janos Veres revealed that a major package of tax reforms was to be postponed due to a lack of political and social consensus needed to carry them through.

Critics of the tax cuts argue that reduced revenues mean Hungary will fail to meet its own budget deficit target of 3.8% of gross domestic product this year, and will remain above the ceiling of 3% of GDP set for countries attempting to enter the eurozone.

Recommended