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Prime Minister plans Ft 300 billion in tax cuts in 2006

Hungary will lower the top value-added tax rate to 20% as of January 1, 2006, from 25% and cut the top personal income tax rate to 36% from 38% also starting next year, Prime Minister Ferenc Gyurcsány said at a Budapest press conference today. The Prime Minister plans Ft 300 billion in tax cuts in 2006. The government postponed earlier tax-reduction plans, including a flat value-added tax, until after elections in the second quarter of 2006, as it needs to pare spending to meet pledges to cut the budget deficit. Hungary, which missed deficit
targets for three straight years, must meet euro-adoption limits by 2008 in order to use the currency two years later. Candidates switching to the euro must bring their budget deficits to below 3% of gross domestic product. Hungary's budget shortfall accounted for 5.4% of GDP last year, excluding revenue of private pension funds. Gyurcsány also proposed reducing the corporate tax rate for companies with profits of less than Ft 5 million to 10% from 2006 and abolishing the municipal tax payable by businesses as of 2008. The government plans to lower employers' social security contributions to 24% from currently 29% in two steps through 2009, Gyurcsány said. The minimum wage will increase to an average Ft 70,000 as of next year depending on qualifications from Ft 57,000 this year.