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Raising pension contribution to add HUF 35 bln to 2011 budget revenues

An increase in the rate for employee pension contributions from 9.5% to 10.0% of gross wages will add HUF 35 billion to fiscal revenues in 2011 and will generate an additional HUF 40 billion-45 billion annually in the years following, the independent Fiscal Council said.

The forecast was part of a fresh assessment on the 2011 tax package on which Parliament is to take a final vote on Tuesday. Amendments approved during the parliamentary debate improved the combined effect of the tax measures on the central government's fiscal balance in 2011 and 2012 and did not alter its effect for the years 2013 and 2014, the Council calculated.

The rise in the pension contributions will cut next year's net wage growth back to 5.4% to from 6%, the Council said. It will add 0.1 percentage point to gross wages as the Council expects employers concede part of the rise in wage negotiations.

The increase will dampen consumption growth by an estimated 0.1 percentage point, resulting in somewhat lower revenues from VAT. These indirect effects will shave off around HUF 3 billion of the direct revenue increase of HUF 40 billion-45 billion, the Council projected.

The Robin Hood tax on energy providers will be phased out in 2013 under the final bill, resulting in a HUF 35 billion-40 billion revenue shortfall for the budget in 2013 and 2014, the Council said. The phase-out would reduce the costs of the affected companies and would thus raise investment growth rate by 0.2 percentage points in 2013, the Council added.

The Council noted that the government had projected revenue from the Robin Hood tax in both 2013 and 2014 in a supplement to the 2011 budget, even though the tax is to end in 2013 under the tax package before Parliament.

The projections in the budget supplement show the Robin Hood tax generating HUF 23 billion of revenue both in 2013 and 2014 after HUF 20 billion-20 billion in the previous two years. The revenues from the Robin Hood tax are below the respective revenue forecasts of the Fiscal Council for the total 2010-2014 period.

Including the effects of some minor amendments approved during the parliamentary debate, the tax package will have a neutral effect on the central government's cash flow-based primary balance in 2011 instead of worsening the balance by HUF 28 billion as the original bill would have. The impact on the 2012 budget balance improved by HUF 35 billion during the parliamentary debate, although the tax package still results in an additional deficit of HUF 363 billion compared to the unchanged base scenario, the Council said.

The interim amendments did not alter the overall effect in the following two years, when the Council projects, as before, that the tax package will cause the fiscal balance to worsen by HUF 711 billion in 2013 and by HUF 767 billion in 2014.

The above projections do not take into account the effect on the fiscal balance of the banking levy and crisis taxes on the energy, telecommunications and retail sectors or the temporary rechanneling of private pension fund membership fees into the budget or the use part of the private pension fund savings of those returning to the state pay-as-you-go pension system. (MTI – Econews)