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Gov’t aims to reduce tax centralization

Planned tax changes will be on the whole neutral effect on the budget this year as savings from the tightening steps will be sufficient to compensate for a revenue shortfall. Tax centralization could start to fall next year and could be reduced to 33%-34% of GDP from 40% at present by 2011, Finance Minister Peter Oszkó said.

Employers can expect a 5 percentage point cut in payroll taxes and the elimination of the fixed-sum monthly health contribution next year. This could cut the cost to the employer by 6% on employees earning the average wage and by 7.7% for employees at the minimum wage, Oszkó said. The steps could encourage new hirings, especially of lower-trained staff, he said.

The changes in the taxes will motivate employees through extending the bracket of lower personal income tax rate to incomes four times of the average wage. This will reduce the current high marginal taxation of 71% which does not encourage better performance, the minister said.

Hungarian wages could get among the three most competitive in the region the ratio of net wages to wage costs rise 10%-12% from 46% at present.

The government cannot rely on the "whitening" of the black economy at present. This process can bring in additional revenue only if it goes parallel with a cut in the tax burden and tighter tax control, Oszkó said, citing the example of Slovakia and Russia. These countries made these steps when they had enough buffer to take the risk.

Measures to whiten the economy should still be taken, but budget revenue must be planned in the most conservative manner possible, Oszkó said. He noted that it is difficult to estimate the size of the black economy, but it is even more difficult to foresee how reduced taxes would affect this “sector's” propensity to pay tax. (MTI – Econews)