Finance Ministry hammers MDF tax proposal

The tax cut package proposed by junior opposition party MDF would strip the central budget of Ft 1.4 trillion (€5.4 billion), the Finance Ministry said, citing an in-house report published yesterday.

The conservative Hungarian Democratic Forum on Monday proposed, among other things, a universal tax amnesty to tax dodgers who are prepared to pay 10% of their unreported back taxes, the introduction of a flat 18% personal income tax, and a VAT scheme with three rates.

MDF suggested that with all the extra revenues and costs on the scale, the tax package would cost nothing to the state, while making the regime leaner.

But the proposal was promptly slated by several media observers, who variously branded it ill-conceived, amateurish, unrealistic and highly detrimental to the budget. The Finance Ministry joined in with the other analyses yesterday, which concluded that the package would in fact put a huge dent into the state coffers.

The report pointed out several alleged flaws in the scheme, including a technical error MDF made when calculating the effects of the tax amnesty. The Ministry said the Ft 75 billion (€297 million) in extra tax revenue the amnesty is hoped to generate would have a one-time effect only as opposed to MDF’s calculations, which factored it in as annual revenue.

Ministry figures also suggested that the 18% flat income tax would erase Ft 813 billion (€3.2 million) from the budget rather than bring in the same as the current regime, whereas eliminating existing tax benefits would, for instance, generate only Ft 65 billion (€257 million) in extra revenue.

The package would break even only if Hungary’s GDP growth was at around 10%-12% and 2 more million people were employed, the Finance Ministry said.