Parliament adopts Economic Stability Act

Hungary’s Parliament on Friday approved the Economic Stability Act, originally submitted as the financial stability act.

Among the cardinal laws - those requiring a two-thirds majority in parliament to amend - contained in the act are those stipulating that Hungary will have a flat-rate personal income-tax beginning on January 1 and providing an exemption until preparation of the 2016 budget from the provision in Hungary’s new constitution to come into effect on January 1 that the acceleration in the yr/yr rise of state debt cannot exceed half that of expected inflation and real GDP contained in the budget.

 European Commission President Jose Manual Barroso asked Hungarian Prime Minister Viktor Orban to withdraw the act before its adoption until its compatibility with EU law was clarified.

Deputies from the governing Fidesz-Christian Democratic People’s Party coalition voted in favor of the act, while those from the radical-right wing opposition Jobbik party voted against the act and those from the opposition Hungarian Socialist Party and Politics Can Be Different Parties declined to participate in the vote.

The act also contains a law stipulating that Hungary’s 102,000 remaining private pension fund members will have the option of transferring to the state pension system by the end of March 2012. Similar to those members who returned to the state pension system earlier this year, returning members will receive the real yield and additional contribution payments if any on their investment into their private fund.

In a further amendment to current pension legislation, private pension fund members’ 10pc-of-gross-wage pension contribution will go to the state pension fund, making them eligible to receive state pensions.

The act also contains laws related to the regulations governing the reduction of government debt, the legal status of the Government Debt Management Center, the organizational and procedural order of the Budgetary Council, and rules pertaining to state loans provided to credit institutions.

A last-minute amendment proposed by National Economy Minister Gyorgy Matolcsy rewrote the procedure the Fiscal Council should follow when reviewing the compatibility of budget bills with the regulations on state debt. The act will not allow parliament to pass the law on the budget or budget amendments without an advance clearing by the Fiscal Council.