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Audi to continue investment program in Hungary

Audi is expected to continue its investment programme in Hungary, state secretary Ábel Garamhegyi said on Friday, following talks between Audi chairman Martin Winterkorn and Prime Minister Ferenc Gyurcsány.

"The hang-up was not really about financial matters, but rather about communication," state secretary at Ministry of Economics and Transportacion Ábel Garamhegyi said, explaining that the government could not always fully inform investors on issues concerning them around the time of the election, but these matters were worked out now. Winterkorn assured Gyurcsány that the company understands Hungary's economic situation, and it accepts the resulting changes to the environment for doing business in the country, Garamhegyi said. "We have great hope that the investment programme will be carried out, and that the offer of support by the government will be accepted," Garamhegyi said.

Audi said in October that it had suspended investments planned for next year at its plant in Hungary and was looking for a new production base in Central Europe because of the introduction of the so-called "solidarity tax" – 4% of pre-tax profits -- which companies must pay on top of the corporate profit tax. (Under an earlier government decision, Audi is exempt from the corporate profit tax until 2011.) At a cabinet meeting on Wednesday, the government decided to allow all companies to deduct R+D costs from their tax base for the solidarity tax, acting on an earlier suggestion by Audi board member Jochem Heizmann. The decision is expected to result in Ft 5 billion less budget revenue, a government spokesman said after the meeting. Garamhegyi said on Friday that the Ft 5 billion less budget revenue could be balanced by bigger GDP growth, but conceded that it is still not known from where, exactly, the money to make up for the shortfall will come. He noted, however, that the move is an investment for the long term but it is hoped it will have an effect in the mid-term as well, Garamhegyi said. The tax deduction would encourage R+D spending and would create more high-income employment.

Audi is Hungary's second-biggest company, with annual revenue of more than Ft 1,000 billion last year. It has annual profits of around €300 million, a spokesman for the company's Hungarian unit said earlier. It employs more than 5,000 people. Audi Hungária said earlier it planned to make investments worth €1 billion at its plant by 2010, including ones worth €200- 250 million in 2007. (Mti-Eco)