New Hungarian Prime Minister Unveils Tax Plans

by Ulrika Lomas, Tax-News.com, Brussels

23 April 2009

Speaking to a press conference on April 19, the new Hungarian Prime Minister Gordon Bajnai underscored his proposals to quickly bring the Hungarian economy out of a deepening recession, which he cited could cost as much as 6% of GDP during 2009.

Within the package of measures, the public sector will be subject to particularly stiff measures; wages will be frozen until 2011; the thirteenth month pension allowance will be abolished; and government at regional and municipal level will be subject to restructuring. Bajnai has however allowed for the possibility of compensation for losses from the elimination of the thirteenth month pension when the financial and economic crisis subsides.

Bajnai’s plans to increase the number of working people in Hungary will see the retirement age hiked over a period of time from 62 to 65. Family support will be frozen at its current level for two years, sickness benefit will be cut from 70% to 60%; child support will be reduced until 2011; and energy subsidies will be phased out in the short-term. There will be a 5% increase in Value-Added Tax (VAT) from 20% to 25%, whilst essential goods (including milk, bread and heating) will be subject to a reduced rate of 18%.

Personal income tax brackets will be adjusted.

Bajnai’s proposals include a reduction in employers’ payroll tax of 5% and a simplified corporation tax system. Corporate income tax will be cut from 20% to 19% overall, by the removal of the 4% solidarity tax, and an increase in the corporation tax rate of 3%.

Growth is expected to be a negative 6% (of GDP) during 2009, but recovery is anticipated as early as 2010-2011 with positive growth of 2%.

Hungary’s budget deficit is expected to remain under 3% of GDP during 2009, although Bajnai has underlined that admission to the Euro zone is not a ‘priority’.

Recommended