The position of Fidesz - Hungarian Civic Union on the cabinet's tax proposals for 2005

Dátum: 2004-10-29 09:04:00, eredeti URL: http://archiv.fidesz.hu/index.php?Cikk=30376
KCMDB-be feltöltve: 2024-05-04 20:51:29.810563, Feltöltő: fidesz_hu_scraper_v2

The socialists and liberals promised significant tax cuts in the 2002 election campaign, and the liberals even placed this issue in the focus of their campaign agenda with their memorable proposal of a single-rate 18-percent income tax. In government, the two parties proved less enthusiastic about their promises: in 2003 and 2004, the socialist-liberal coalition raised taxes in 22 instances in Parliament. The huge "credibility deficit" led to the unprecedented mid-course demise of the government of Mr Péter Medgyessy in August this year. The new government of Mr Ferenc Gyurcsány was coerced to promise a "new start" in its programme, and with it came again the promises of tax cuts. However, actions speak again louder than words - the cabinet's draft budget and taxing regulation proposals will put additional strains on taxpayers in 2005. It seems that the Gyurcsány-cabinet carries on the practice of PR-guided (income) tax cuts outweighed by an array of increases in other taxes, charges, duties and contributions.

Strain on enterprises

It is again the small and medium-sized enterprises which will pay for the flawed economic policy of the socialist-liberal government. SMEs employ 40 percent of Hungary's labour force and contribute 50 percent of the Hungarian GDP. Despite promises to the contrary, the taxing regulations of the last two years have greatly burdened enterprises, thus slowing growth and reducing competitiveness. (Not surprisingly, international institutions and analysts have repeatedly indicated a systematic dive in Hugarian competitiveness.) It is now the Gyurcsány-cabinet that keeps on the momentum of raising taxes. A third type of social security contribution will be added to the already existing pension and healthcare contributions, affecting 400,000 entrepreneurs. Business mobile, and normal phone use will be taxed, significantly increasing operational costs for job-creating enterprises. Travel benefits provided to employees will similarly be taxed. Several procedural charges are to increase sharply (e.g. registration fee for enterprises), whereas local taxes are also expected to rise significantly, due to the austerity measures leading up to the bankruptcy of several local councils. BKIK (Budapest Chamber of Commerce) expects that that the overall additional burden on enterprises (ca. HUF 136 billion) will hardly be balanced by the relief package announced by the cabinet for SMEs, expected to be at around HUF 36 billion. All this will heavily affect promises of the government centred on job creation.

Strain on individuals

The effects of last year's tax increases will still be effective this year, and the taxes are even more increased in many areas. In 2004 and 2005, an extra total of HUF 1000 billion is projected to be paid by the taxpayers in income and value added taxes. Although the government is communicating about a more just taxation system helping the dispriviliged and taxing the wealthy, the recently heralded rearrangement of income tax rates fails to address the basic situation that the average income (a mere HUF 140,000 per month) has come to be taxed in the highest category, and also not helping the fact that highest effective VAT tax in the European Union is in Hungary. Tax breaks on private pension fund membership, tuition fees, insurance, etc. will be limited to a total of HUF 100,000 per year. Taxes on real estate renting and sale and arable land renting will be significantly raised, as well as levies on the issuance of basic documents (passport, driver's licence, etc.). The draft taxing regulations will fail to improve work ethics with the message "the more you work, the more you are taxed." Similarly, abolished tax breaks will hardly stimulate savings and investments.

Fidesz proposals

As opposed to the imitated tax cuts proposed by the government, Fidesz stands for a genuine relief for the taxpayers. With a view to the personal income tax, income categories should be re-arranged in a way to allow the average income to be taxed in the lower (18-percent) rate. Tax breaks on long-term investments, such as life insurance and private pension and healthcare fund membership, should be preserved, as well as the allowance on preferential housing loans. Fidesz proposes that corporation tax rate for SMEs be reduced from 16 percent to 8 percent, with the registration fee for enterprises lowered by half. The tax on incomes taxed separately (such as incomes from agricultural activity) should remain at 20 percent, as opposed to the government's 25-percent plans. Fidesz also proposes that the increase of excise duty on fuel be delayed until the price of crude oil falls below the 40 USD/barrel threshold. Fidesz strongly opposes the introduction of the taxes on business mobile and normal phones and employees' travel benefits.

28 October 2004