Hungary Under Critisism For Tax Plans

July 22, 2010 Taxation in Hungary

EPP Sumiit 15 May 2006The Government of Hungary is receiving widespread criticisms and warnings that its current budgetary plans are unbalanced, inefficient, and will likely lead to lower tax revenues.

The International Monetary Fund (IMF), the European Union (EU), and the national Fiscal Council have all criticized Prime Minister Viktor Orban’s budgetary plan, claiming it could result in an overall revenue fall of HUF 200 billion (approx. USD 897 million).

The key issue surrounding the disagreement is the method by which Hungary will attempt to lower its budget deficit. The Government intends to instate a new special financial services tax throughout 2010 and 2011, which the Prime Minister believes could earn HUF 200 billion per year. However, in a statement issued this week, the Fiscal Council claimed that the earnings estimate is overstated. Further, implementing the new tax would lower national corporate tax revenues more than the possible gains from the tax itself. Ultimately, there is a strong possibility that Hungary will be in a financially poorer positions than now.

The EU and IMF have recommended that the Government simply adheres to a policy of reducing public spending. Prime Minister Viktor Orban retorted, saying it was Hungary’s “…exclusive national responsibility” to determine how exactly it will attempt to lower the budget deficit. The IMF and EU concluded its recent discussions with Viktor Orban on July 17th, saying that it does not support the country’s financial plans in their current state. Further talks between Hungary and the EU are scheduled to be held on July 22nd. Commenting on the upcoming meeting, Michel Barnier, European Internal Market Commissioner, said, “…we expect this constructive spirit of cooperation from Hungary in order to find strict but at the same time effective compromises on issues outstanding.”

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