Hungary increasing tax burden

(25/05/09)

In a recent television broadcast, Hungarian Prime Minister Gordon Bajnai announced that his government is seeking to implement a "fairer" property tax system in order to raise HUF10bn for its public purse.

The latest announcement will further increase the tax burden on Hungarian citizens who have already seen substantial increases following an austerity budget approved earlier this month by government.

Public wages will be frozen until 2011; the thirteenth month pension allowance will be abolished; and government at regional and municipal level will be subject to restructuring. Bajnai however did allow for the possibility of compensation for losses from the elimination of the thirteenth month pension when the financial and economic crisis subsidies.

Bajnai plans to boost employment by increasing the retirement age from 62 to 65. He also announced that family support will be frozen at its current level for two years, sickness benefit will be cut from 70% to 60%; child support will be reduced until 2011; and energy subsidies will be phased out over the short term.

The budget sees a VAT increase of 5% from 20% to 25% but there will be a reduced rate of 18% on essential goods (including milk, bread and heating). Personal income tax brackets will be adjusted. Bajnai’s budget also includes a reduction in employers’ payroll tax of 5% and a simplified corporation tax system. Corporate income tax was reduced from 20% to 19% overall by the removal of the 4% solidarity tax while the corporation tax rate was increased by 3%.