Prime Minister Ferenc Gyurcsány outlined proposals to save taxpayers Ft 1,000-1,200 billion through tax cuts, reducing red tape drastically and exercising zero tolerance for tax evaders in an article published in Wednesday’s issue of daily Népszabadság. PM tax cut proposal achievable but risky, says Deloitte head.
Companies would enjoy two-thirds of the tax reduction and citizens the rest. Taxpayers would save Ft 300 billion in 2009, and the rest within three to four years. As part of the plan, which is intended to spur economic growth, Gyurcsány proposed scrapping the 4% “solidarity” tax, from 2009, but at the same time raising the corporate tax rate to 18% from 16%.
The payroll tax rate would be reduced a combined 10 percentage points, or one-third from the current rate. From April 1, the basic payroll tax rate would be reduced 5 percentage points on the first Ft 140,000 of monthly wages. From 2010, the payroll tax rate would be cut a further 2 percentage points.
Gyurcsány would raise the cap on the 18% personal income tax bracket to an annual Ft 2 million from Ft 1.7 million, also from 2009. Higher earners would pay the current 36% rate and there would be no tax on the first Ft 750,000 of income, meaning Gyurcsány would keep minimum wages free of personal income tax. From 2010, the threshold for the 18% bracket would be raised to Ft 2.5 million. Eventually, the 18% threshold would be raised to Ft 3 million.
Taxes would eventually be centered around 18-20% in the Hungarian economy and that would be competitive with the flat tax systems in place in some of the neighboring countries, Gyurcsány said.
The drop in budget revenue from the resulting tax cuts is expected to be offset by measures to discourage tax evasion, however a special buffer fund would be set up in case these measures do not prove sufficiently effective in providing the projected extra budget revenue. Some Ft 300 billion could be put into the fund in 2009, the amount taxpayers are expected to save in the same year. Gyurcsány proposed reducing the state’s level of redistribution to 43-45% of GDP, and, within this, the level of tax centralization to 35-37%.
Hungarians’ level of social services would be closely guarded and proposals for drastic cutbacks rejected, but steps would also be taken to ensure only those citizens who are genuinely in need of social welfare receive it. A national employment program would be started in 2009 that would provide work for at least 50,000 people for 6-8 hours a day by 2010. Additionally, companies that win big state investment contracts would be required to offer 10% of work positions for the order to disadvantaged laborers.
The only areas of the civil sphere in which state spending as a proportion of GDP would grow are education, culture and the sciences. The aim is to boost spending on education to 6-7% of GDP, the level of spending in Scandinavia and about one and a half times the current level in Hungary.
PM PROPOSAL ACHIEVABLE BUT RISKY
The prime minister’s proposal to cut taxes Ft 1,000-1,200 billion is achievable, but risky, Péter Oszkó, who heads the local unit of consultancy Deloitte, told MTI on Wednesday. Oszkó said measures to “whiten” the shadow economy could generate more budget revenue, but budget expenditures -- which the proposals don’t address -- must be cut at the same time. Counting on Hungarians whose income comes from the black or grey economies to start sharing the tax burden presents a real risk, he added.
Gyurcsány’s proposals to scrap the 4% “solidarity” tax and reduce the payroll tax by ten percentage points are line with suggestions made by multinational consultancies, he said. Eliminating the solidarity tax will save companies almost Ft 200 billion, though another of Gyurcsány’s proposals to raise the corporate tax rate to 18% from 16% will allow the state to recoup about one-third of the lost revenue, he added.
Oszkó noted that Deloitte had proposed the government make up for revenue lost because of tax cuts by raising the flat health care contribution to Ft 8,000 a month from Ft 1,950, introducing a property tax and creating three personal income tax brackets at rates of 10%, 20% and 30%.
Hungary’s competitiveness will only improve if the level of state redistribution is reduced at least ten percentage points from the current 50%. (MTI-Econews)