Government aims to boost jobs, consumption with tax breaks
Prime Minister Viktor Orbán unveiled his government’s billion-euro employment action plan in Parliament on Monday, promising “tax cuts of unprecedented scale”. The new package of tax benefits is aimed at boosting Hungary’s stubbornly poor employment figures, and promises benefits to employers and small businesses. However banks – or, rather, their customers – look set to fill the huge hole in next year’s budget via a contentious transaction tax.
The first five items in the ten-point plan outlined by Orbán involve a reduction in the rate of social security contributions paid by employers, but only on monthly wages of up to HUF 100,000 (EUR 350). This rate – currently 27 per cent – will be halved for employees under 25, those aged over 55 and for unskilled workers aged 25 to 54.
Furthermore, contributions will be waived entirely for the first two years after an employer hires someone who has been out of work for over a year or a mother returning to the workforce after receiving maternity benefits, and only half of the full amount will be payable in the third year.
Hungary’s army of self-employed and micro-business managers (often the same thing in practice) will have the option of a new type of “flat tax”. As long as annual revenue remains below HUF 6 million (EUR 21,025), they can opt to pay a flat monthly contribution of HUF 50,000 (EUR 175.20) (those running a business in addition to holding down a job will only pay half). Small businesses employing up to 25 will be able to opt into a new SME tax regime. Instead of current corporate tax and other contributions, they will pay 16 per cent on a tax base comprising profit plus payroll costs.
Pay VAT after you are paid
Finally, Orbán outlined three measures less directly affecting tax revenue. Firms whose sales revenue is less than EUR 500,000 a year will not have to pay VAT until they have received payment, an exemption from the standard accrual-based accounting practice. Capital losses due to exchange-rate fluctuations will be disregarded when assessing a firm’s capital position, and complex rules on accounting for petty cash will be simplified.
The new measures should be approved by Parliament at the beginning of the autumn session, the group leader of the ruling Fidesz party, Antal Rogán, told reporters later in the day. Rogán said the HUF 300 billion (EUR 1.05 billion) scheme could “pay for itself” in a short time by stimulating job creation, consumption and investment. However, next year at least the hole in the budget will be filled by broadening of the planned financial transaction tax.