Hungarian Prime Minister Revisits Employment Tax Cut Proposals

by Ulrika Lomas, Tax-News.com, Brussels

27 January 2009

Ferenc Gyurcsany, Hungarian Minister for Finance, has signalled that he plans to considerably reduce employment taxation, notably income tax and contributions, after a meeting with leading economists on Monday.

Gyurcsany said the government would prepare a program of comprehensive amendments following the meeting and warned that last decade's politically-friendly but economically-unviable tax policies would be subsequently phased out, laying the foundations for an effective tax system for the next three to four years.

The announcement comes after a meeting in early November where Gyurcsany first called for a reduction in payroll tax in 2009 to head off a prolonged recession. Plans for a long-term cut in payroll tax were also announced in mid-September as part of a comprehensive EUR5bn tax cut package. However, the minority Socialist government was forced to scrap the plans as the financial crisis worsened and the fiscal situation deteriorated, but they appear to have been revisited this week.

Under the former plans, the government sought to implement a 5% cut in employers' social security contributions (payroll tax) from next year, coupled with an additional 2% reduction in the levy in 2010. In the long-term, the government had aimed to cut payroll tax by a total 10%. It is as yet unclear to what degree the government will propose cutting employment taxes in this latest package of reforms.

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