Next year, the personal income tax rate is planned to be cut from 16 percent to 15 percent, VAT on pork is projected to be lowered from the current 27 percent to 5 percent, and the family tax allowance is also set to be increased from the current HUF 10 000 per year for families with two children to HUF 20 000 by 2019, Minister for National Economy Mihály Varga announced at a press conference following the presidency meeting of the Fidesz-KDNP ruling coalition.

As the Minister pointed out, the fees and duties payable for several public utilities provided by state operators will also be proposed to be cut. The Minister also said that in the draft budget the Ministry is factoring in economic growth of 2.5 percent, an inflation rate of 1.8-2 percent, government budget deficit of 2 percent and an exchange rate of EUR/HUF 308.

The 2016 budget bill is scheduled to be submitted to Parliament until 13 May.
In the budget, some HUF 100bn is to be allocated for extraordinary Government measures.

Summing up the fiscal effects of tax cuts, the Minister said that the lowering of PIT will leave HUF 120bn at families – at more than four million people.  The increase of family tax allowances for families with two children, the cut in VAT on pork and the lowering of fees and duties will decrease fiscal revenues by about HUF 15bn, HUF 25bn and HUF 10bn, respectively.

Responding to a question on bank tax, the Minister said that the Government will fully comply with the terms of the MoU concluded with the EBRD and Erste Bank.  In exchange for accelerated lending, he added, the Government will lower the bank tax, from 0.53 percent of balance sheet total to 0.31 percent in 2016. Other sectoral taxes are not planned to be modified, he stressed.

The Minister also informed the press that the corporate income tax rate is not planned to be reduced, but the financing of the career model of Government employees, to be launched at mid-2016, is incorporated into the budget.

The economic policy in place since 2010 will be maintained. As the performance of the Hungarian economy has improved markedly over the past years, the extra revenues of the budget permit the broadening of spending.

However, the Minister emphasised that general government debt must be further reduced and the government budget deficit must be kept below 3 percent of GDP. Parallel to the improvement of fiscal and trade balances, economic growth has also picked up, reaching 3.6 percent last year.

In his opinion, the fact that the National Assembly will adopt the budget already in the first half of the year improves predictability and calculability, as economic operators can better plan for the future.

Fidesz fraction leader Antal Rogán said that due to the planned tax changes, the income of a childless family with two earners of average wages will increase by HUF 4700 per month and by HUF 56 000 per year, while in case of a family with two children and two minimum wage earners the extra income will total HUF 7100 per month (HUF 85 000 per year). At a family with two children and two earners of average wages, income growth will be HUF 9000-9500 per month.

He also stated that the 2016 budget will be the budget of tax cuts and he called attention to the fact that the past five years have proven that the reforms launched in 2010 are effective.

(Ministry for National Economy)