Minister Matolcsy Announces New Fiscal Package In Hungary

  • 8 Oct 2012 9:02 AM
Minister Matolcsy Announces New Fiscal Package In Hungary
Minister for National Economy György Matolcsy held a press conference earlier this morning where he announced a fiscal adjustment package totalling 397 billion forints, which will ensure that a budget deficit below 3% of GDP will be achieved.

Hungary's gross domestic product is expected to grow by 1% next year, the Minister said, adding that according to the government's new macroeconomic prognosis, the budget deficit is expected to stay unchanged during the second half of 2012. The Government will freeze 133 billion forints (470 million euros) in next year's budget in order to keep the deficit at 2.7%, which among others will apply to allocations of government-run institutions, the Minister stated.

He also announced that the financial transaction tax will no longer apply to the Central Bank, however the transaction tax to be paid by the National Treasury will rise to 40 billion forints and cash withdrawals at banks will be levied a charge of 0.3%. As a whole, this measure will add 60 billion forints to the state budget.

According to calculations, tax revenue shortfall resulting from VAT fraud is 500 billion forints per annum. A string of legislation will be introduced to increase the efficiency of tax collection and in total these economy whitening measures are forecast to boost revenues by 120 billion forints. Among these steps, the Minister mentioned that about 400 thousand cash registers will be fitted with a device that will establish a direct online connection with the National Tax and Customs Administration of Hungary (NAV), a measure which in itself will increase revenues by 95 billion forints. The government will also introduce reversed taxation in the pork trade, after reversed VAT already implemented in several other fields has proved successful.

The social contribution ceiling for gross incomes above 661 thousand forints a month will be abolished by the government, meaning some 51 billion forints in extra revenues for the budget.

In order to further rationalize public sector wages, the Government will postpone the formerly planned wage increase for teachers from 1 September 2013 to January 2014, Minister Matolcsy said, adding that if growth is above 1% in 2013, the initial date will be reinstated. This measure will save 73 billion forints. In 2013, a ceiling will be introduced on those social benefits that can be requested at and awarded by local governments, although child support benefits will not be affected. Details of this measure are still being elaborated but the ultimate objective is that the amount of total monthly benefits paid by a local government shall not exceed the amount of 47 000 forints per person, the wage of a public work employee. Savings resulting from this measure are expected to equal 8-10 billion forints. The level of co-financing in European Union projects will be cut from 15% to 5%, the Minister announced, which amounts to budgetary savings of 55 billion forints.

In addition, in the next three years the Government will not fill job vacancies created when employees retire – with certain exceptions, such as the positions of doctors and nurses. Due to the reorganization of public administration, the number of people employed in the public sector will already decrease by approximately 22 000 in 2013. Another change will be that public sector employees who keep their jobs after reaching retirement age will not receive a pension as long as they receive their salary, he added. This measure is expected to cut expenditure by 30 billion forints.

The Hungarian currency strengthened following the announcement and analysts welcomed the introduced package that will contribute to the successful outcome of talks with international lenders. At a press briefing on Friday, the European Commission’s representative welcomed the elimination of the financial transaction tax on the Central Bank, also calling the talks alongside the IMF with the Hungarian authorities an on-going process and stating that negotiations never stopped between the parties.

Source: Prime Minister’s Office -

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