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Week in review: Read his lips – new taxes!

Banking

EDITORIAL

Prime Minister Viktor Orbán dispelled all illusions about taxes on businesses in Hungary today, saying that his government’s special levies on the financial, energy, retail and telecommunications sectors are here to stay, and calling the new tax on advertisers a matter of “justice”.

Each of the sectoral taxes stirred opposition when they first arose, and as a package, critics say, they may drive businesses away from Hungary. Orbán and his cabinet have maintained that higher taxes on businesses will allow lower personal income taxes, a claim that the Prime Minister reiterated today, during his weekly broadcast on public radio MR1. He said that personal taxes would be cut to less than 10% by 2018, as long as GDP growth stabilizes at around 4-6%, something he claimed was possible.

Orbán’s growth projections seem ambitious, given that the World Bank said on Wednesday that Hungary’s GDP growth in 2014 is likely to be 2.4%.

But it could also be asked how much cuts in personal income taxes would help. While the cuts may sound good to the average citizen, the businesses hit hardest by taxes may feel the need to pass on their increased costs by increasing the prices of their goods and services. This is something that the banks have already done. Furthermore, if taxes drive businesses away, they will take their jobs with them, something that could also hurt the average citizen.

Beyond the numbers, critics of the new advertising tax, which was passed on Wednesday, say that the measure is more about politics than economics. Orbán seemed to partially concur, when he called it “justice” that the profitable media sector will be forced to take up more of the public burden.

What makes the tax appear political is that it takes the deepest cut from one station, RTL Klub, the country’s largest independent broadcaster. RTL Klub sometimes airs news reports that are critical of the government. Under the new law, RTL Klub sits alone in the top bracket, meaning they must pay 40% of their advertising revenue in taxes. In response to what it sees as an attempt to silence their opposition, RTL Klub has vowed to take on the government head-on. They may be joined in their fight by the European Commission, which has promised to investigate the fairness of the new ad tax.

During today’s radio address, Orbán also spoke of his goal to reduce unemployment to zero, and said that part of his plan for doing so is to increas the number of public works jobs that are available.

On the full employment front, the week brought good news and bad for Hungary.

Danone announced cutbacks across Europe, which are expected to mean layoffs of 155 workers in Hungary by the end of 2015. More positively, Russian grocery chain Magnit has decided to open a distribution center in Hungary, which move is expected to employ 1,500, and Samsung announced that it would expand its Hungarian plant, creating more jobs there.

Overall, the employment picture should improve, according to a survey by Manpower, which projected more hirings in Q3.

We may be a long way from the Prime Minister’s hoped-for 4-6% growth, but we seem to be going in the right direction. 

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