The Government aims to bolster the country’s competitiveness through reducing payroll taxes and hiking wages, Minister for National Economy Mihály Varga told public news channel M1 on Friday evening.

Following the planned tax reduction scheme, taxes payable by employers on labour will fall in the next six years to the level of the Czech Republic and Slovakia. It is not low wages that make Hungary attractive for foreign investors any more, he stated, as “there are cheaper countries than we are.”

As he stressed, wages are set to rise this year by 6-7 percent without any Government measure. In the next two years, the Government wants to reduce payroll taxes as wages rise.

A recent proposal to cut employer contributions by 5 percentage points in 2017 and by another 1 percentage point in 2018 must be taken into consideration, he said. This could be a viable compromise between the standpoints of the Government and employer organizations, he pointed out, as the Government’s proposal has not been endorsed.

The reduction of the corporate income tax rate to 9 percent is a good message: it boosts the country’s FDI potential as this is one of the lowest rates within the EU.

The Minister acknowledged that this measure mostly benefits those 1500 companies which have an annual turnover above HUF 500 million. These large enterprises, however, are also large employers, produce mostly for export markets and contribute significantly to Hungary’s GDP. SMEs can mostly profit from the modified conditions of the Small Taxpayer Lump-Sum Tax (KATA) and the Small Business Tax (KIVA), planned as of next year.

As Mihály Varga pointed out, these measures may help the country’s economic growth rate to advance to the 3-5 percent per year bracket.

(Ministry for National Economy)