Hungarian PM Elaborates On Tax Cut Plans

by Ulrika Lomas, Tax-News.com, Brussels

18 February 2009

Following its announcement in late January, Hungarian Prime Minister Ferenc Gyurcsany has elaborated on his HUF900bn (USD3.8bn) stimulus package. Speaking on February 16, Gyurcsany outlined his proposals and disclosed a timescale for their introduction.

In talks with economists in late January, Gyurcsany signalled that he planned to considerably reduce employment taxation, notably income tax and contributions. Although the Prime Minister disclosed that the package would change fiscal policy considerably, concrete proposals were not announced until this week.

Many also questioned whether Gyurcsany would follow through with the proposals after he retracted the initial plans to cut payroll tax in November 2008 after Hungary’s fiscal situation deteriorated, but it would seem he has affirmed his commitment.

Gyurcsany predicts that the latest measures will bring Hungary out of a prolonged recession, whilst bringing its budget deficit within the Maastricht Criterion of 3%.

Speaking on Friday Gyurcsany said that the government would move ahead with all of its previously announced proposals. Some of the most important changes include:

• Payroll taxes will be reduced by 5% to 27% in two steps.
• Both rates of income tax will be subject to an increase, with the lower and upper bands subject to hikes of 1% and 2%, respectively, to 19% and 38%, from July.
• The retirement age limit will be increased incrementally to 65 in 2025.
• The 4% solidarity tax will be scrapped for both individuals and companies - January 1, 2010.
• The corporate tax rate will be raised to 19% from 16% - January 1, 2010.
• VAT will rise to 23% from 20% - July 1, 2009.
• Excise taxes will rise by up to 7%.

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