The Hungarian government’s latest draft of a tax package contains a tax shuffle which will have only a modest effect on employee incomes this year and will do little to lighten the burdens on businesses, business daily Napi Gazdasag reported on Tuesday.
The tax change plans said to be worth 1,500 billion forints (EUR 5 bn) over the next two years will mainly widen the income base for the lower tax rate this year and will hike rates from the current 18 and 36 percent to 19 and 38 percent next year.
The measures are part of the government’s strategy to combats the effects of the global economic crisis. The economy is expected to contract by 3.5 percent this year and the government aims to cut the budget deficit to 2.9 percent of gross domestic product in line with the expectations of the European Union while having to contend with lower revenues.
Representatives of employers and employees (OET) expressed disappointment over the tax package. Employers said the plans lack substantive competitiveness boosters while employee spokesmen resent the rising tax on non-wage benefits, which in many cases constitute a large part of their income.
Heads of chambers of commerce said deeper reforms were necessary and the government should not evade spending cuts by reshuffling taxes.
The extra wealth tax of 4 percent will only be scrapped next year. Tax breaks will be gradually withdrawn from the system, the paper said.
For companies, the most important changes are a drop of 5 percentage points to 27 percent in employers’ contributions which will be partially introduced this year and apply to all incomes next year. This will be offset by a hike in value-added tax from 20 to 23 percent in July this year.
The 4 percent extra tax on corporations will also be scrapped from 2010, while company tax will be raised to 19 percent.
Secretary of employer organisation VOSZ Ferenc David said: “The planned contribution cuts on wages are nothing but an anemic, technical reshuffling,” .
Peter Pataky, chairman of the largest trade union MSZOSZ, told the paper: “With these changes, low-income earners will again get a rough deal.”
Among indirect bad effects of the package could be a drop in long-term savings. Julianna Baba, chairwoman of AXA pension fund’s board of directors, said the government’s tax plans encourage short-term spending rather than long-term investments and do not help in whitening the economy.
Peter David of AmCham urged further reductions to the burdens on businesses, as they drive the economy. Gabriel A Brennauer of the German chamber said long-term structural reforms, instead of short-term regrouping of taxes, are what can improve Hungary’s competitiveness.