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Hungary plans to cut corporate, income tax rates


Hungary's government is planning further cuts in corporate and personal income tax rates, lower payroll taxes and reforms to higher education to boost competitiveness, Prime Minister Viktor Orban said on Thursday.

Orban said a recent upgrade by Moody's, which took the last of Hungary's three main credit ratings back to investment-grade, was a sign that his controversial policies, dubbed "Orbanomics," have successfully stabilised the economy.

But he said past success was no guarantee for the future.

"We cannot rest assured regarding the future of the Hungarian economy. The Hungarian economy needs comprehensive reforms to enhance competitiveness," Orban told a conference organised by the European Bank for Reconstruction and Development.

In the World Economic Forum's 2015-2016 Global Competitiveness Report, Hungary ranked 63rd, behind Poland, the Czech Republic and Romania. It is also suffering a record labour shortage that is driving up wages across the economy.

Orban said that meant the period when Hungary could attract foreign investment with lower wage bills was ending, and that Hungarian companies would continue to face wage hike pressures.

Hungary's gross average wages rose by 6.9 percent in August at a time of no inflation.

Orban, who faces an election in the spring of 2018, said the government would do its part by making the tax system more competitive, flagging an unspecified reduction in the 19 percent corporate tax rate for big companies in the coming years.

Small businesses pay a 10 percent corporate tax.

Orban also said personal income tax would probably be reduced from a current flat 15 percent rate. Payroll taxes would have to be lowered, he said, while the government will boost incentives for companies to invest in research and development.

Hungary has already flagged plans to cut its average payroll taxes to match levels in neighbouring Slovakia and the Czech Republic in five or six years.

Orban also said Hungary's labour force would have to improve as workers needed more sophisticated skills and more flexibility in terms of finding a job. He said that would also require reforms to higher education, which he did not specify.

Orban also sent a message to banks, which Hungary squeezed for years with one of Europe's highest bank taxes before entering a landmark agreement with the EBRD and the local unit of Erste Group Bank AG last year.

 "The Hungarian banking system has fallen behind the world and even some regional countries in terms of efficiency and the application of new technology," he said. "We need an active and competing bank sector."

Source: www.ifcreview.com