The government decided on Wednesday to hike the middle VAT rate to 20% from 15%, Zoltán J Gál, state secretary of the Prime Minister's Office, announced on Wednesday.
The move will result in a VAT rate of 20% instead of increasing the mid rate to 17% and the top rate to 23%, which had been recently touted by the Socialists to placate trade unions and employers, who were concerned that raising the 15% bracket would mainly hit lower income groups.
The junior governing party, the liberal SzDSz, which favours the eventual introdutction of a flat tax, was against increasing the top VAT rate. The government is bound to act as specified by the coalition agreement, Gál said.
Employees contributions will increase from 1.0% to 1.5% and the revenues will be put towards an unemployment fund.