Big Four's Tax Proposal

The proposal, announced last Tuesday (Aug 13) suggests a total tax cut in the excess of Ft1,200bn ($7.53bn) and nudges the Hungarian taxation system toward a more employer-friendly structure.

Analysts say, this would strengthen Hungarian companies and provide a more attractive business environment for international investors as well. Certain parts of the proposal, however, triggered immediate protests on behalf of several unions, and garnered controversial reception both from government officials and from the local media. “Our proposal that enjoys a wide range support within the business world cannot be simply swept aside,” Deloitte CEO Péter Oszkó told business website Menedzsment Fórum. Whether he is right about that is yet to be seen.

Major changes
What appears sure is that the proposal would introduce minor changes concerning taxes related to assets and investments, but a major reshape in the structure of employment-related taxes.

The proposal of the Big Four suggests a 20% personal income tax rate for all annual income under Ft15m ($94,000) and a 30% rate for higher earners. This would mean a major personal income tax cut concerning the aggregate figure, but it would eliminate the tax-free minimum wage at the same time. The plan proposes to abolish all other, special forms of income tax (such as EKHO) and urges the government to cut payroll taxes by ten percent, significantly reducing the costs of employment.

The companies, on the other hand, deemed a 3% VAT raise (from 20% to 23%) necessary, as well as introducing a property tax. (This latter tax form is a continuously returning idea for Hungarian lawmakers, and while it has never been approved on national level, several local governments have already introduced it, especially for luxury properties, whose value is more than Ft100m or $630,000). The suggested rate of the property tax would be 0.5% without a value limit in effect.

Finally, the proposal would scrap the 4% “solidarity tax”, paid by those, whose personal income exceeds an amount, annually set by the Tax Authority (APEH).

“Adopting the proposal could boost Hungary’s GDP growth by a full percentage point to 4.5% in the first year,” Péter Oszkó told a press conference after unveiling the plan. He estimated that the measures would also raise the employment by one percent in a year.

No, thanks
“Several elements of the Big Four’s scheme meet the plans of the government,” the Finance Ministry said in a statement reacting to the proposal. But while the suggestion is highly ambitious, it generously entrusts the government to find sources for the Ft1,200bn (Ft1,250bn or $7.84bn according to the ministry’s calculations) tax cut. Since jeopardizing the budget balance can not be an option, “we find that these sources are available only through substantial cuts in the social and welfare system,” the ministry wrote. 

Government officials also nibbled at the proposal’s being most beneficial for those with higher earnings, while aggravating the situation of the poorest. The statement concluded that the proposal was “helpful,” but indicated that not many of its actual suggestions would be adopted.

The scheme of the Big Four also drew criticism from trade unions, who opined the plans would hurt those with relatively low salaries (by abolishing the tax-free minimum wage and increasing the lowest rate of the personal income tax from 18% to 20%), and were, therefore “unacceptable”. 

János Borsik, chairman of the Autonomuos Unions’ Alliance (ASzSz) said they accepted the idea of reducing the costs of employment, but “not this way.” “Tax reforms can not be tools in the hands of powerful companies,” Borsik concluded suggesting that Big Four experts were attentive to their own interests when drawing up the proposal."

Source: Budapest Sun