Hungary’s parliament passed Prime Minister Gordon Bajnai’s tax package in a final vote in parliament on Monday.
In a vote of 201 for, 166 against and 4 abstentions, MPs rubberstamped tax changes for 2009, including a VAT hike from 20 to 25 percent from July 1, with a discount rate of 18 percent for dairy, bakery products and from August for district heating.
In another vote, parliament scrapped 13th month bonus pensions.
The measures include raising the income ceiling for the lower 18 percent tax rate from 1.7 million to 1.9 million forints retroactively from January and reducing employer contributions on labour by five percentage points, for up to a double of the minimum wage from July. Sick pay will be reduced from the current 70 percent to 60 percent of one’s pay.
The tax changes seek to retain jobs and improve the income situation of the middle classes, Finance Minister Peter Oszko told MTI following the vote. He said that reducing employer contributions would help protect existing jobs, but added that the creation of new positions would require a different economic environment and larger-scale changes in the structure of taxation.
Oszko said that the message of the tax changes was that “it is worthwhile to stay active” in that the burden on those in employment was being reduced, covered mostly from revenues from the increased VAT and excise tax.
The 13th month bonus pension, corresponding to a full month’s pension, will be replaced by a premium linked to economic growth. The lowest bonus of 20,000 forints (70 euros) will be paid if Hungary’s GDP growth reaches 3.5 percent, and the maximum bonus of 80,000 forints (280 euros) if GDP growth is at least 7.5 percent.
The retirement age will rise from 62 to 65 in annual increments of six months starting in 2012.
The rules for calculating pension increases will also change. Pensions will increase in line with the rate of inflation if GDP growth remains under 3 percent. If GDP increases by 3 to 4 percent, both consumer price inflation and the net wage growth will be taken into account in a proportion of 80 to 20 percent. If growth is between 4 and 5 percent, the pension growth will be indexed to CPI and, in a proportion of 60 to 40 percent. Should GDP growth exceed 5 percent, the rise will be linked to both CPI and net wage growth, in equal proportions.
“Finance Minister Peter Oszko ……added that the creation of new positions would require a different economic environment and larger-scale changes in the structure of taxation”
Well what is he waiting for?
“the burden on those in employment was being reduced, covered mostly from revenues from the increased VAT and excise tax.”
Oh I get it, if you work then you don’t pay VAT. I see, silly me.
I am failing to see how these tax “reforms” will leave anyone better off. Its just another case of giving with one hand and taking with the other. The Government are trying to show to the rest of the world that they are doing something when really they are doing nothing. How exactly are these measures going to get Hungary out of this crisis?
It’s like taking the pennies out of your left pocket and putting them into the other, the one with holes in it. Welcome to the land of the Hungarians. And you thought Alice in Wonderland was weird…
@Godot: Actually, in their (slight) defense, this round of amendments was meant to be “revenue-neutral,” meaning just a re-jiggering of taxes away from labor and onto consumption. Which wouldn’t be a bad thing at all, if all the labor “freed up” by the lower employer levies, etc, didn’t get immediately sucked up into the effort to get back that extra five percentage points of VAT/AFA.
@Erik. This isn’t tax neutral. Given the number of people on NET Salaries (where the employer ensures that regardless of the tax regime, the employee walks away with the same amount), this is only going to be tax neutral to the gov’t.
For the employees who enjoy a mix of black and white money, they won’t see a change in their pay packets, but in what they pay when they purchase products (which goes up); and for the employers they’ll see extra savings.
My question is how can a government that should be expert in all things Hungarian miss this point? Or if they know better, then are they just playing to the ignorant gallery?
The best part is how PENSIONERS sweating all of their lives are now going to be dependent on how the economy performs. Of coruse, they have got no input as to how it does.
They will get a “pension bonus” if the economy EXPANDS from 3.5 to 7.5 percent per annum.
Fine, Except then you realize that the Hungarian economy is going to be CONTRACTING by at least these percentages, maybe more.
Sheeet, pretty soon the Hungarian old bacsis and nenis are going to be OWING to the kleptomaniac Gordy Bajnai and his pseudo Socie-Commie wholesale thieves.
Meanwhile, all the nations of the Cartpathian Basin surrounding pitiful basket case Hungary are laughing themselves silly by what goes on in the Land of the Magyar Destitutes. All one needs to do it go over to Bratislava for a day trip to realize quickly that not all of Eastern-Central Europe stinks and rots, like Hungary certainly does.
Help me out, my economic studies are failing me to understand the following:
“The tax changes seek to [...] improve the income situation of the middle classes, Finance Minister Peter Oszko told”
How exactly is the raising of the VAT without a corresponding cut in the income tax is going to improve my middle class situation? (I got the point about the tax avantage to my employer, but not to me). Not to mention the improvement that those who have an annual income of 1.7-1.9 MLN HUF will most likely experience, when their income tax rate will be raised (retroactivele, mind you)…
What is it that I am mising here?
What a great idea to link pensions to the country’s overall economic performance! Contrary to what you stated, Fantron, pensioners can have have a positive effect on Hungary’s economic performance by voting for an economically competent political party. If they choose not to do so, and subsequently do not receive their bonuses, then of course that is their choice.
Oh, and by the way, not all Hungarian pensioners will die next year. So, if these tax changes are retained by the next government, and if that government is economically competent, then pensioners could be benefitting from increase bonuses within a few years.
Rolrox, what exactly would you want from a shift in the Hungarian tax system? Tax neutrality (no overall change in tax) for everyone? Think of all the bureaucrats the government would need to employ to ensure that!
The tax changes, while not nearly going far enough, seem like a good start to me. Reducing employer contributions can only be positive during the current economic situation – it may just help to protect a few jobs here and there – and is vital for the long term economic health of the Hungarian economy.
bascaxl, let me make it simple for you.
Anyone who (legally) earns more than 1.7 million forints per year will benefit from the raising of the income ceiling for the 18% income tax rate. Ergo MORE money in your middle class pocket.
As the reduction will be applied retroactiviely, it will also mean MORE money in your middle class pocket than if it was not applied retroactively.
An increase in VAT will only mean LESS money in your middle class pocket if you spend it on products and services that attract VAT. If you keep it in your middle class pocket then the increase in VAT will not affect you.
In every single country i know of, the conservative (middle class/upper middle class) parties want to shift the taxation from taxing income to taxing consumption, so for my mind (although not enough) from the point of view of tax structure, this is step into the right direction. Also country can only pay social security (pensions or otherwise) if the economy is doing fine, so linking pensions to performance makes sense. However, the biggest problem still is that government simply uses way too much money compared with the economical performance. In slovakia the social security is way tougher than here, hungary has least number of people employed in eu… that kind of social security is simply not feasible.
I may be wrong John Hunyadi, however, even though a tax change may be positive and in the right direction, the problem with a small tax cut is that revenue from taxes will go down because there is still not enough incentive to stop using black market payments.
Slash taxes quickly to a liveable level and enforce their collection (penalty and detection is more costly and likely than evasion) and all of a sudden govenment income from income tax will rise as the 30%+ of black market economy is significantly eroded. The economy is also boosted as people truly have more money in their pocket to spend.
When the government do this in half measures it will only provide evidence that they need to put the tax back up to get more revenue. This is where will currently are and we need to make a jump to get out of this ‘local minima’.
PART 1 of 2
The best I could figure, this Hunydai Janos chap is a government plant here. We call them colloquially “Spionen” — and worse. ;~)
Anyhow…
“What a great idea to link pensions to the country’s overall economic performance!
MY TAKE: Not, it is NOT a “great idea” to do that, Kedves Janos. In fact, it is a rather STUPID idea.
“Contrary to what you stated, Fantron, pensioners can have have a positive effect on Hungary’s economic performance by voting for an economically competent political party.”
MY TAKE: Janos, if you really think so, then you haven’t a clue. For one, there are no “competent political parties” in Hungary. There never will be, either. That is not what Hungary is sll about, My Friend. And for two, all pensioners have to do it sit back and enjoy their old age. Since they are no longer working, there is NOTHING they can do to ensure whether the country will have an economy that contracts by 7.5% or expands by 7.5%. But Janos, you really do not see that, right?
PART 2 OF 2
“If they choose not to do so, and subsequently do not receive their bonuses, then of course that is their choice.”
MY TAKE: Wow, Mister Janos, Hungarian government’s English-language spokesperson. So, I take it if the Hungarian ecomnomy does not incease by 3 or 4 or 5 or 6 or 7 or 7.5 percent per annum, Bajnai and Oszko will squarely lay the blame on the Hungarian pensioners’ shoulder? And they would actually be RIGHT in doing so?
Wow, Janos of the Hunyadis. I hope YOU never grow old, Man.
“Oh, and by the way, not all Hungarian pensioners will die next year.”
MY TAKE: Maybe, but then that is bad for Bajnai and Oszko, right? What use would they have for Hungary’s poor pensioners, after all?
“So, if these tax changes are retained by the next government, and if that government is economically competent, then pensioners could be benefitting from increase bonuses within a few years.”
MY TAKE: Janos, My Friend, it is for people thinking just like you that Hungary is in the shi_thouse, and yet still going down the toilet.
Hi JD,
“Slash taxes quickly to a liveable level and enforce their collection (penalty and detection is more costly and likely than evasion) and all of a sudden govenment income from income tax will rise as the 30%+ of black market economy is significantly eroded. The economy is also boosted as people truly have more money in their pocket to spend.”
I agree with you that slashing tax levels (and simplifying the tax system) is the best course for Hungary. I don’t think government income would suddenly rise by 30%, rather it would dip for a year of two before rising again (but ideally it would not reach current levels, as the government spends too much).
Hmm Fantron,
So I suggest that pensioners vote for an economically competent party (ie not the MSZP, which they currently vote for en masse) and you think I am a government spy? Interesting logic!
Stating that something is a STUDID idea, without giving your reasons, is not going to convince anyone.
“For one, there are no “competent political parties” in Hungary”. There are no economically competent political parites in Hungary only because Hungarians have voted against any party that begins to show the slightest understanding of economics. When the MSzP is trounced in the next general election, it will be the first time that the voters have made some sort of link between economic competence and the right to be in government. But, let’s see what they put in the MSzP’s place…(I believe it will be better, but I’m not sure the difference will be that noticeable).
“There never will be, either.”
Now, to bring myself back down to your level (hint: ****IRONY HERE****). Unless you are visitor from the future then you have no clue what the future will bring. The best I can figure, from your attitude, is that are a foreign spy (from a neighbouring country) come to gloat at Hungarians’ misfortune. Hungary is not a sh*t house, so you can f**k off back to your own country’s online fora.
“I suggest that pensioners vote for an economically competent party (ie not the MSZP, which they currently vote for en masse).”
MY TAKE: Janos Hunyadi, I suggested that you are a jerk for other reasons. For instance, for writing something as stupid as the above sentence. You wrote it, right?
The last time anyone had voted for the MSZP in a general election was over three years ago, Fool! Then, just a couple of days ago, citizens of the City of Pecs (it is in Southern Hungary, BTW) overwhelmingly voted the MSZP out of office, even though Pecs was an MSZP-run city for many decades.
Man, where are you getting YOURS NEWS from, the MSZP weekly newsletter? Or from some old Young Communist flyers? The Young Pioneer Almanach, then?
“Unless you are visitor from the future then you have no clue what the future will bring.”
MY RELATED QUESTIONS: This is what YOU had said, Janos. And if this is indeed true, then how come YOU are running off your mouth about what is going to happen in Hungary AFTER the next general election, Huh? BIG MOUTH!
“The best I can figure, from your attitude, is that are a foreign spy (from a neighbouring country) come to gloat at Hungarians’ misfortune. Hungary is not a sh*t house, so you can f**k off back to your own country’s online fora.”
MY TAKE ON THAT: Yeah, YOU really must be but a dumb, ignorant Hungarian, Janos, to think that Hungary is not in the proverbial sh_ithouse. Of course it is, Fool! Just ask anyone OUTSIDE of Hungary.
This change was inevitable. I am sure the government regretted the reduction to 20% a few years ago. There is an interesting article on this site http://www.tmf-vat.com/european-vat which talks about how all countries now have to increase VAT. Examples of recent increases include Latvia and Ireland. I’m sure the UK will increase VAT to 20% soon too.
Fortunately, I live in a state that has no sales tax, in a country that has no Value Added Tax. Nothing.
Not planning on moving to anwhere in the EU, that is for sure.