Hungarian PM Rules Out Flat Income Tax

by Ulrika Lomas, Tax-News.com, Brussels

02 February 2005

Hungarian Prime Minister Ferenc Gyurcsany has rejected calls from an opposition leader for the country to adopt a flat tax, despite a growing trend towards the system in neighbouring countries.

Gyurcsany was responding to comments made last week by Viktor Orban, the leader of the centre right Fidesz party, who has urged the government to formulate a new budget for 2005 that will include radical tax cuts to ensure that Hungary can remain competitive with the likes of Slovakia and Romania, which have both recently introduced a flat rate of income tax.

"There should be a sensible debate on what policy we want to pursue concerning taxes and social contributions, and what social services we want to provide from these taxes," Gyurcsany told reporters.

"I am astonished to hear the statement, made by a party that says it wants to promote social justice, that a cleaner should pay the same rate of tax as a chairman of a bank," he remarked.

At 16%, Hungary’s corporate tax rate remains one of the lowest in the European Union. However, the country may find it harder to compete for international investment after neighbouring Slovakia cut personal and corporate income tax to a flat 19%. Foreign firms also complain about local business taxes and high social security contributions.

Moreover, the government is under pressure to maintain revenues in order to address a budget deficit equal to 4.7% of GDP.

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