Budapest, April 25 (MTI) – The question of whether to introduce a single-digit income tax will be broached next year, the economy minister said in an interview to Monday’s issue of business daily Világgazdaság.
Mihály Varga said that reducing the tax from the current 15 percent would lead to revenue losses amounting to 600 billion forints (EUR 1.9bn). But if the rate of growth stays on its current trajectory and the government succeeds in streamlining public administration then there will be room for tax cuts, he added.
The government will be faced with deciding whether to devote these savings purely to tax cuts in 2018 or whether other areas such as wages, investments and reductions to the public debt should be points of consideration. Whatever the case, a decision must be made in spring of next year, Varga insisted. He added that next year the extent of the reduction to the public debt would be smaller on the back of tax cuts and spending on investments.
The minister flagged a guarantee that operational spending would flat-line, and revenue and expenditure would be balanced. However, given the country’s development and investment spending, it will not be possible to achieve a balanced budget according to European Union accounting rules, he added.
Varga said the government had so far focused on consolidation, reducing the budget deficit and creating stability. But now the emphasis must be placed on ensuring sustainable and faster growth. The government must respond to reports of labour shortages from all sectors of the economy, he said.
The 2018 general election would also be taken into consideration when drafting next year’s budget, he added.
So next year the budget gap will actually rise to 2.4 percent of GDP from 2 percent this year, he said. Further, projected deficit for 2018 would be raised to 1.8 percent in Hungary’s updated Convergence Programme, which must be submitted to Brussels by the end of April, from 1.6 percent in the previous update submitted a year earlier.
The deficit will then decline in subsequent years, Varga said. As long as economic growth is above 3 percent and the fiscal deficit is below 2.5 percent, the public debt as a percentage of GDP will automatically fall because of today’s lower interest rates.
Varga acknowledged a “professional dispute” with Eurostat over how to account the loans of the state-owned Magyar Eximbank that could impact the level of public debt. “We’ll weigh the possibilities when a decision is taken … it’s worth concentrating on consultations first,” he added.
Varga suggested that the earlier announced acquisition by the state of a stake in Erste Bank Hungary was not set in stone.
“Due diligence has finished and a price has been established, but the government could still decide that reducing public debt is more useful in the long term than buying the Erste stake,” he told Világgazdaság.