TAX NEWS - JUNE 2010

Hungary Tax: Hungary Economy Minister's comments

On comments last week by ruling party official comparing Hungary to Greece: "It was not the government, it was one of our leading politicians, these comments were not made by the government.

"By the end of May, its true, 87 percent of this year's total budget deficit level was realised, so there are worrying signs about the Hungarian budget.

"But during the weekend the new Hungarian government had a session in order to keep the budget deficit under control.

(Question: are you sticking to the 3.8 percent (of GDP) budget deficit target?)

"Absolutely, no doubt about that. We'll stick to our guns.

"We'll stick to our 3.8 percent budget deficit level for this year. It was agreed by the IMF and the EU and it was also agreed by the Hungarian government so there is no doubt about that, we'll stick to that figure."

"It is blatant that Hungary is not Greece. Greece has 230 billion (euros) worth of public debt, and in the case of Hungary, we've got only -- only -- 76 billion euros public debt. So hungary is not Greece.

"Of course there were some blunders, there were skirmishes about this blunder, but the case is clear cut. The new Hungarian government will keep the budget deficit under control.

"On the one hand its clear cut, again, there is no need to have an austerity plan. On the other hand, there is no option to have a fiscal stimulus package.

"We'll have an action plan on the part of the new government, we'll cut budget expenditures, on the other hand we'll boost revenues. And also we'll cut bureaucracy in order to improve the business climate in Hungary.

"It is evident that we have tightening measures in place. 4 percent of GDP worth of austerity measures are in place at present in Hungary. There is no need for new austerity plans.

"But on the other hand we have to cut budget expenditures, we have to cut bureaucracy, and of course we have to boost investments -- because out of every 100 forints spent in the Hungarian economy, 40 forints, 40 percent of all money spent in the Hungarian eocnomy return to the budget. So by boosting investments in Hungary we can improve revenues of the budget.


TV 2

"One (thing) is that the deficit must be 3.8 percent at the end of the year. The world is nervous, they make all sorts of comparisons to Hungary, incorrectly, there could be another recession in the United States... so the world is very nervous, we need to assure everyone about what our true objective is.

"At the same time, we have to jumpstart the Hungarian economy. So we need to start a very smart, fine tuned action plan, in which of course we achieve budget savings, but we also cut bureaucracy, start investments, and begin to accelerate drawing down EU funds."

"We take many steps... we might have positive growth at the end of the year."


Q: How much does Hungary need to save?

"There are multiple calculations on the table. 1-1.5 percent of GDP, which would not be a substantial sum in and of itself, but for us Hungarians of course it is substantial, it means hundreds of billions of forints worth of budget savings. But we must add that there is no scope for any new austerity programmes in Hungary, because the previous government already introduced a very grave austerity package, and that is partly the reason behind the current deep economic crisis in Hungary."

"The government has tabled a very serious, ambitious plan to overhaul the tax system. The government has made a preliminary decision that Hungary will take an initial direction toward the flat personal income tax systems in place in the (Central and Eastern European) region.

"We are examining every option between 15 percent and 20 percent. What is for certain is that we have to combine that with family taxation because the new tax system must support child bearing above all.

"As we see now, and the government is preparing to make such a decision, that from Jan. 1, 2011, a flat family tax could be introduced and finalised over a period of two years.

"So I hope we can start a three-year radical tax cut programme -- we await the government's decision today, which the prime minister will announce tomorrow in parliament. If we start a radical tax cut regime this year, then either in business taxes, or in small taxes, we can make the first perceptible cuts this year.


Q: Will Fidesz take private pension payment schemes back into the public system?

"There are many kinds of proposals on the market. We have not discussed that and we have not made a decision on that. We have not talked about the pension system as such, which has three pillars by the way. But that was not on the agenda."