Hungary Delays Tax Cut Plan

by Ulrika Lomas, Tax-News.com, Brussels

15 October 2008

Hungary’s minority government leader Prime Minister Ferenc Gyurcsany announced plans on Friday to delay proposed tax cuts worth EUR5bn as the financial crisis gripping the US and Western Europe envelops the country's own stock markets.

The tax reforms, announced by Gyurcsany in August, would have removed the 4% solidarity tax on corporate income and top rate individual taxpayers and give Hungary a base corporate rate of 18%. Previously proposed long-term cuts in payroll tax and across-the-board individual tax relief have also been deemed financially unviable while the country struggles with its fiscal deficit.

The government plans to tackle its budget deficit faster than originally planned by proposing to lower the 2008 budget gap target to 3.4% of GDP, from 4% of GDP, and the 2009 shortfall target to 2.8% of GDP from 3.2% of GDP.

The Prime Minister announced while at a consultation with parliamentary leaders and National Bank of Hungary Governor Andras Simor that alongside the tax cuts, the planned privatization of large state-owned companies will be put on hold.

Gyurcsany also called for a suspension of all wage negotiations for 2009 and for freezing real wages at current levels until June next year.

The cabinet needs the backing of at least some opposition MPs to push through legislation in Parliament. Prime Minister Ferenc Gyurcsany's minority Socialist government hangs by a thread and narrowly survived a motion passed in August trying to remove the party from power.

Recommended