A new set of measures aimed at improving Hungary’s budget balance – announced by Economy Minister György Matolcsy on September 16 – are similar in structure and methods to the “New Balance Program” created by the second government of Ferenc Gyurcsány in 2006, Origo writes. As a consequence of those measures, the economy slowed down drastically, consumption plunged, and inflation accelerated.
Similarly to Matolcsy’s program, the 2006 package was built on raising the VAT, social contributions and several smaller taxes while also introducing new ones. Cuts to spending were largely limited to a scheme to subsidize household consumption of national gas.
The newly-announced measures are clearly benefiting the rich, news portal Index writes.
According to an analysis by RSM DTM Hungary, the “hole” in next year’s budget will be filled by low-earners and families raising more than two children. Workers who have only two children and earn over Ft 213,000 (€739.5) gross per month will take home a little more next year. Single workers who earn the minimum wage will be the most negatively affected by the changes in the personal income tax system. Such individuals would lose one-sixth of their net income if their wage remained unchanged, Origo writes. Raising the VAT would also mean their income would go less far.
Currently, a minimum-wage worker takes home Ft 60,600 per month (Ft 78,000 gross). If the minimum wage is not changed next year, their net wage would be Ft 8,730 lower (Ft 51,870), which means losing 14.4% of their income, based on Origo’s calculations.
Similarly, a worker earning Ft 100,000 gross would lose 10.5%, while those earning at least the average wage of Ft 210,000 gross would take home more. Everyone earning above the average wage would benefit from the changes, and the rise in the net income would get larger as the wage gets larger.
While legislation passed earlier this year obliges companies to raise gross wages in order to a drop in workers’ net income due to the shift to a flat tax regime, companies may opt for laying off workers so that they can afford to raise wages of others, Origo notes.
An element of the package which affects all consumers negatively is the plan to raise the VAT from 25% to 27%. Index points out that Fidesz was against this move before it gained power. In June 2006, Péter Szijjártó – the party’s current spokesperson – said Fidesz was not supporting any measures which would put more burden on people. Three years later, still during the previous government, he warned that raising the VAT to 23% meant Hungary would have the third highest VAT rate in Europe.
If the Fidesz government raised it to 27%, it would be the highest in the EU.