Continued wage hikes and tax cuts in Hungarian 2018 budget

The draft 2018 budget will be based on continued wage hike and tax cuts, economy minister Mihaly Varga said in an interview for the daily Magyar Idok. The tax cuts planned for next year will cost the budget over HUF 200bn, which will be offset by further measures to improve tax collection and reduce the grey economy, he said. Varga repeated the planned tax reductions for next year, which include the already promised 2pps cut in the social contribution rate. Besides that, the small business tax will be also reduced by 1pp and the VAT on internet services and fish will be cut to 5%.

Varga said that household benefits will be raised as well and the government will continue with the policy of career models and wage hikes in the budget sector. He, however, rejected the idea that the 2018 budget is prepared with a view of the election cycle – EP and general elections next year and municipal elections in 2019. The budget discipline was maintained during the previous elections in 2014, he pointed out. The draft 2018 budget is designed under the principle that not a single policy sector should receive less funding than in the previous year, Varga stated.

The planned spending hikes and tax cuts will be met by increased revenue from economic growth and further steps to curb the grey economy, Varga said. The online cash register system and the electronic road freight control system yield around HUF200-300bn of additional revenues per year, he noted. An online billing system will be introduced as of Jul 1, 2018 next year, which will electronically send companies’ billing information to the tax administration, Varga said. The system will start test trials as of Jul 1, 2017 and will become mandatory next year.

Varga gave evasive answers on questions regarding the government’s Eurobond issuance plans for 2018 and the plans for financing the Paks nuclear plant expansion. The 2018 financing plan will be decided at the end of this year, he said. The economy ministry and the state debt manager AKK monitor market developments and the budget’s borrowing requirement and will take a decision for a possible forex bond issue based on the related costs and risks, he added. The economy ministry will also decide on the most appropriate form of Paks financing with a view to optimize the cost of investments, Varga said.

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