Josef hírek

2010.06.13. 10:40

08/06 Orban outlines tax cuts, bank levy and makes pledge on deficit (adds analysts)

<p>Budapest, June 8 (MTI) - Viktor Orban, head of the Fidesz centre-right government, on Tuesday pledged a new tax system, a flat 16 percent income tax, wage cuts in the public sector, a special bank levy and a ban on new foreign-exchange home loans.</p>

The forint was stable against the euro at 283.10 after the prime minister outlined the economic action plan and analysts said the tax on banks could help to generate sufficient revenue to meet the budget deficit target of 3.8 percent of gross domestic product for this year.

    Raiffeisen Bank chief analyst in Budapest, Zoltan Torok, said the measures announced by Orban in Parliament moved in the right direction, boosting the competitiveness of domestic companies and allowing the country to meet its deficit target for 2010. They would also make the tax system more transparent and reduce tax evasion, he added.

    Three tax changes will take effect on July 1, a government source told MTI. Ten small taxes which were payable by small and medium-sized enterprises will be scrapped, the corporate tax will be cut from 19 to 10 percent for profits below 500 million forints (EUR 1.75m) and a new banking levy introduced.

    K and H Bank chief analyst Gyorgy Barcza said the cost savings resulting from the measures would reduce risk in the 2010 budget by around 230 billion forints (EUR 815.6m).

    David Heslam, head of European sovereign ratings at Fitch Ratings, told MTI s London correspondent, however, that details were missing.

    "Today s announcements started to shed light on the government s plans but there are still a lot of gaps in terms of costing and budget deficit numbers ... for the moment we consider (Hungary s) BBB long term foreign currency rating and the negative outlook to be appropriate".

    The government s aim is to square the circle of keeping tight fiscal control to ensure the deficit target is met while adding 1 million jobs to the economy over a ten-year period and kick-starting growth.

    The public debt stands at around 80 percent of GDP and the budget posted a deficit of 4 percent of GDP last year, while the economy is expected to show only very modest growth this year after shrinking by 6.3 percent in 2009. The tax take is by far the largest in the region, which is a drag on Hungary s competitiveness.

    A JP Morgan analysts in London said in a report that, importantly, the tax cuts would be introduced gradually starting in 2011, which should make it "relatively easy" to meet the 2010 fiscal deficit target.

    "Provided the spending cuts are implemented, the fiscal deficit can decline further next year," the analysts said.

    Orban s pledge on Tuesday to introduce a family taxation system along with a flat 16 percent personal income tax within the next two years came together with a plan to negotiate with banks on a special bank tax also payable by financial service providers and insurance firms over the next three years which is intended to boost budget revenue to 200 billion forints from 13 billion from this sector.

    The bank tax is expected to result in "hefty" budget revenue equivalent to 0.7 percent of GDP in 2010 and address "most of the slippage to the deficit target that would have occurred in the absence of any measures this year," said JP Morgan.

    However, Hungarian Bank Association head Tamas Erdei said the tax would squeeze lending activity and was growth-negative.

    He said banks would have to shoulder the burden at a time when they face serious difficulties with write-downs on their portfolios. The tax will affect their capital positions and reduce their lending activity, making it more difficult for borrowers in the real economy to take out loans, he added.

    Measures to offset potential lost revenue also came with an announcement to cut state spending, making way for savings of 120 billion forints (EUR 425.5m). Policies include reducing state wage costs by 15 percent, setting a monthly salary cap of 2 million forints in the public sector.

    Orban said the corporate tax rate will be reduced from 19 percent to 10 percent, the corporate profit ceiling subject to tax would be raised from 50 million to 500 million forints (EUR 1.75m), a move which was welcomed by tax expert Szabolcs Vamosi-Nagy of Ernst and Young.

    Orban said mortgages would be restricted to forint loans, and the current ban on foreclosures would be extended to the end of the year.

    JP Morgan s analyst said that the ban "will not change much in practical terms" as Swiss-franc borrowing effectively came to a halt early last year and forint borrowing has been gaining ground, and it could prompt banks to increase charges on forint loans, possibly weighing on household borrowing.

    "In the longer term, however, a ban on foreign-currency lending could be positive for the stability of the financial system," the analyst added.

    Opposition leaders gave mixed reactions to the Fidesz centre-right government s plans.

    Socialist parliamentary leader Attila Mesterhazy criticised Prime Minister Viktor Orban for failing to divulge the details of how the government intended to stick to the budget deficit target and reduce the national debt.

    He said the flat tax would benefit rich families, but he welcomed the special tax on banks while urging that banks should guarantee not to pass on the cost of the measure to clients.

Ezek is érdekelhetik

Hírlevél feliratkozás
Ne maradjon le a boon.hu legfontosabb híreiről! Adja meg a nevét és az e-mail-címét, és mi naponta elküldjük Önnek a legfontosabb híreinket!