"Hungary's Prime Minister, Ferenc Gyurcsány, is to announce a HUF 1,200-billion, multi-year tax reduction scheme on Tuesday afternoon, public television MTV reported. The tax cut programme is not not have an impact on the country's deficit and inflation targets laid down in the Convergence Programme, it added.The PM will reveal the proposals to the Socialist Party (MSZP) at a closed-door parliamentary faction meeting today afternoon. The public will not be let in on the details until Wednesday morning, then ministers can start talks with employers' organisations and unions, the MTV said.
Previously, they said a source of the tax cuts could be an increase to the rate of value-added tax to 25% from the current 20%, but MTV cited MSZP faction members as saying that they would not support such proposal. They would neither give their blessing on plans to cut social spending or pensions to find funds for the tax cuts.
A number of economists believe a 23% VAT rate would be the highest acceptable, but the report that the cabinet would not put its deficit and CPI goals in jeopardy implies that there will be no VAT hike, as it would cause a rise in the consumer price index.
According to the MTV's news programme, Híradó, the HUF 1,200-bn tax reduction programme would be carried out in a span of several years, but tax reductions for corporations (4% solidarity tax) and individuals would be substantial already in the first year of the programme.
Hungary targets to lower its public sector deficit to 3.8% of GDP in 2008, below the 4.0% it has committed to with the European Union and aims to reduce it further to 3.2% in 2009.
The government's manoeuvring room next year, the whitening of the economy and the abolishment of certain allowances, allows for tax cuts to the tune of a few hundred billions of forints in 2009."
Source: Portfolio Online Financial Journal
27.08.2008