Prime Minister Ferenc Gyurcsany outlined proposals to save taxpayers HUF 1,000bn-1,200bn through tax cuts, reducing red tape drastically and exercising zero tolerance for tax evaders in an article published in Wednesday’s issue of daily Nepszabadsag.
Companies would enjoy two-thirds of the tax reduction and citizens the rest. Taxpayers would save HUF 300bn in 2009, and the rest within three to four years.
As part of the plan, which is intended to spur economic growth, Mr Gyurcsany proposed scrapping the 4pc “solidarity” tax, from 2009, but at the same time raising the corporate tax rate to 18pc from 16pc.
The payroll tax rate would be reduced a combined 10 percentage points, or one-third from the current rate. From April 1, the basic payroll tax rate would be reduced 5 percentage points on the first HUF 140,000 of monthly wages. From 2010, the payroll tax rate would be cut a further 2 percentage points.
Mr Gyurcsany would raise the cap on the 18pc personal income tax bracket to an annual HUF 2m from HUF 1.7m, also from 2009. Higher earners would pay the current 36pc rate and there would be no tax on the first HUF 750,000 of income, meaning Mr Gyurcsany would keep minimum wages free of personal income tax. From 2010, the threshold for the 18pc bracket would be raised to HUF 2.5m. Eventually, the 18pc threshold would be raised to HUF 3m.
Taxes would eventually be centered around 18-20pc in the Hungarian economy and that would be competitive with the flat tax systems in place in some of the neighbouring countries, Mr Gyurcsany said.
The drop in budget revenue from the resulting tax cuts is expected to be offset by measures to discourage tax evasion, however a special buffer fund would be set up in case these measures do not prove sufficiently effective in providing the projected extra budget revenue. Some HUF 300bn could be put into the fund in 2009, the amount taxpayers are expected to save in the same year.
Mr Gyurcsany proposed reducing the state’s level of redistribution to 43-45pc of GDP, and, within this, the level of tax centralisation to 35-37pc.
Hungarians’ level of social services would be closely guarded and proposals for drastic cutbacks rejected, but steps would also be taken to ensure only those citizens who are genuinely in need of social welfare receive it.
A national employment programme would be started in 2009 that would provide work for at least 50,000 people for 6-8 hours a day by 2010. Additionally, companies that win big state investment contracts would be required to offer 10pc of work positions for the order to disadvantaged labourers.
The only areas of the civil sphere in which state spending as a proportion of GDP would grow are education, culture and the sciences. The aim is to boost spending on education to 6-7pc of GDP, the level of spending in Scandinavia and about one and a half times the current level in Hungary.