Personal income tax and social contributions paid by businesses must be “significantly” cut in order to boost the flagging economy, Prime Minister Ferenc Gyurcsany said on Thursday during an extraordinary parliamentary session convened to debate the economic crisis.
Gyurcsany outlined to members of parliament a government plan to reconfigure 1,000 billion forints (EUR 3.5bn) within the tax system, but said this must be offset on the revenue side.
“We should tax work less and tax spending and wealth more,” he said.
The government expects the economy to contract by 2.5-3.0 percent this year, putting extra pressure on the budget, but an effort would be made to keep the budget deficit target of 2.6 percent, Gyurcsany said earlier.
Today he proposed eliminating the so-called solidarity tax, a four percent tax on corporations and the wealthiest introduced in 2006, as well as cutting payroll taxes.
To offset lost revenue, he said some tax benefits and exemptions would have to be significantly reduced and value-added taxes should be raised moderately.
Gyurcsany said social spending must be made more efficient and need based — benefits system would be recalibrated so as to channel more money to those with the greatest need.
“It should be clear: those with higher earnings should be allowed to pay less tax, but should not have recourse to welfare,” Gyurcsany said. He added that encouraging work was necessary, as too many people have relied on welfare benefits.
The prime minister said that Economy Minister Gordon Bajnai would consult with leaders of the Hungarian Banking Association and the state’s financial supervisory body in order to find ways to stimulate lending to businesses, including finding ways to speed up lending.
He said a smaller parliament was needed and the budgets of members of parliament should be cut, while party financing should undergo reform. The number of local government officials should also be reduced, he said.
Main conservative opposition Fidesz, whose MPs stayed to listen to Gyurcsany’s speech, reversing a policy dating back to 2006 of boycotting his set-piece speeches, called for early elections and called on the prime minister to resign. Fidesz group leader Tibor Navracsics said Fidesz understood the need for parties to join forces, but this was impossible while Gyurcsany was leader.
The small liberal opposition Free Democrats called on parties to co-operate – Fidesz to refrain from pressing early elections and the Socialists to get down to action on reforms. The Free Democrats said a target date for euro adoption should be set.
Small conservative opposition Democratic Forum leader Ibolya David called for more vigour in tackling the crisis in the form of much-needed reforms and said her party stood by its proposal to introduce a flat income tax.