Consultancies draft stimulus package

Banking

Hungarian tax consultancies presented a number of proposals for tax changes, including ones to introduce a 20% personal income tax rate for all annual income under Ft 15 million and a 30% rate for higher earners.

The proposals, drawn up by the consultancies Deloitte Magyarország, Ernst&Young and KPMG, are backed by the National Association of Employers and Industrialists, the American Chamber of Commerce, the Joint Venture Association and the Hungarian Association of International Businesses.

The consultancies proposed scrapping special forms of income tax for certain professions and eliminating tax exemption for minimum wage earners. They urged the government to reduce payroll taxes by ten percentage points.

Among the other proposals made were ones to raise the main VAT rate to 23% from 20%, scrap the 4% “solidarity tax” and introduce a property tax. Later, to coincide with the reform of Hungary's local government system, the government could scrap the revenue-based local business tax and reduce the dividend tax to 20% from 25%.

Adopting the measures could raise Hungary's GDP growth rate a full percentage point to 4.5% in the first year, without creating additional inflationary pressure, said Deloitte Magyarország head Péter Oszkó. Acting on the proposals could also raise the employment rate half a percentage point in the first year and another half percentage point in the second half of the year.

Because of the Ft 1,000 billion – Ft 1,100 billion effect the changes would have on the budget, they could only be carried out over several years, said KPMG partner Csaba László. He added the proposals would not cause the budget deficit to grow, if they are paired with commensurate cuts in spending or other measures, such as the elimination of tax preferences or an increase in the flat monthly health care contribution to Ft 8,000 from Ft 1,950.

Responding to the proposals late in the afternoon on Tuesday, the Finance Ministry said acting on them would require cuts in social spending, but it acknowledged the proposals would be of help as the government prepares tax changes for next year.

The ministry said the proposals would reduce budget revenue by Ft 1,250 billion, or 4% of GDP, not by Ft 1,100bn as the consultancies said.

The fall in revenue would require significant cuts in state welfare spending, hurting low- and mid-income earners, the ministry said. The proposals would be most advantageous for high-income earners, it added.

A proposal to cut payroll taxes would hurt pensioners, and another to raise the flat monthly health care contribution to Ft 8,000 from Ft 1,950 would hurt SMEs - precisely those businesses the government wants to support in order to create workplaces, the ministry said.

The ministry said it sees eye to eye with the consultancies on many of the elements in the proposals, including measures to clamp down on the shadow economy, simplify the tax system and lessen the tax burden on employers. (MTI – Econews)

ADVERTISEMENT

Business, consumer confidence improves - Századvég Analysis

Business, consumer confidence improves - Századvég

Opposition parties to begin PM candidate primaries Elections

Opposition parties to begin PM candidate primaries

New managing director at the helm of Wolt Hungary Appointments

New managing director at the helm of Wolt Hungary

Budapest bike-sharing scheme boasts record ridership City

Budapest bike-sharing scheme boasts record ridership

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.