Hungary Sets Its Sights on Balanced Budget While Cutting Taxes

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Hungary plans to gradually eliminate its budget deficit in the coming years while also cutting some taxes to provide incentives for companies to grow, Finance Minister Mihaly Varga said.

With the economy already expanding at the fastest pace in 15 years, the cabinet wants to preserve those gains despite a slowdown in Hungary’s main European trading partners. Increased tax receipts from a livelier economy and government reserves will help offset the planned tax cuts, leaving enough room to improve the fiscal position in the next few budgets, he said on Thursday.

Prime Minister Viktor Orban’s government has a good track record in reducing the bloated deficits seen before he took office in 2010, helping regain Hungary’s investment-grade credit rating. At the same time, it has often struggled to keep up with faster-growing eastern European neighbors.

The stimulus steps should help keep economic growth around 4%, or 2 percentage points above the EU average, according to Varga.

Planned measures include:

• 2 percentage point cut in the social contribution tax rate
• Reducing VAT on accommodation to 5% from 18% to boost tourism
• Simplifying or cutting certain tax rates for smaller enterprises
• Increasing funds available for state guarantees for corporate and agricultural loans
• Increased budget for R&D

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editors responsible for this story: Scott Rose at rrose10@bloomberg.net, Andrea Dudik, Balazs Penz

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