Here are the details about the newly introduced windfall taxes!
Hungary’s government considers the protection of the country’s security and economy its two most important responsibilities amid the war in Ukraine, the prime minister’s chief of staff said on Thursday.
The government must do everything in its power to protect the scheme to reduce household utility bills, and to defend family subsidies and pensions, Gergely Gulyás told a regular press briefing. The government has made decisions and is submitting a draft budget to parliament that ensure the protection of its achievements of the last several years, he said.
Though there is no indication of any direct threats to Hungary because of the war,
there is a threat of a humanitarian disaster and the effects of the war on the economy are also severe, Gulyás said. The protracted war and the energy crisis raises the threat of a new global economic crisis, he said, adding, at the same time, that Brussels’s sanctions on Russia were also to blame for the steep price rises.
In the current situation, companies that amass profits through rising interest rates and higher prices can be expected to contribute to the costs of protecting Hungary, whether those go towards the utility price cuts scheme or defence, Gulyás said.
He noted that the windfall taxes announced by the prime minister on Wednesday will be collected into the utilities protection fund and defence fund set up by the government in order to ensure that the utility bill cuts scheme and defence developments can be financed in the long term. The measures also guarantee that
the government can meet its deficit target of 4.9 percent of GDP this year,
he added.
He said the 2023 draft budget assumes a GDP of 68,000 billion forints (EUR 175.4bn) and has a headline number of around 26,000 billion forints. It targets a budget deficit of 3.5 percent, calculates with a growth rate of 4.1 percent and projects an inflation rate of 5.2 percent, he added. The finance minister is submitting the draft budget to the Fiscal Council today, and parliament is expected to debate the bill in the first half of June, he said.
Márton Nagy, the minister for economic development, said that with
another economic crisis looming,
it was key to build a resilient economy and keep the budget and state debt firmly in hand. Nagy said the government was “adamant” that the deficit should not exceed 4.9 percent of GDP in 2022 and 3.5 percent next year. The government is setting up a utilities protection fund and a defence fund, he said, adding that their financing would be expensive due to rising energy prices and the war in Ukraine.
The government’s main source of additional income is expected to come from
windfall taxes imposed on banks and large companies.
Meanwhile, expenditures will be curbed too, by cutting ministries’ expenses and restructuring state-financed investments, Nagy said. Market-based investments will be further promoted, he said.
The minister said it was crucial to protect full employment, the purchasing power of pensions, family support measures and the utility cut scheme. Reduced expenditures will account for about 60 percent of the fiscal adjustment and higher revenues 40 percent, he said.
The windfall taxes will be introduced in eight areas and will raise around an annual 800 billion forints,
Nagy said. The government aims to raise an annual 300 billion forints from the banking sector, including 50 billion by expanding the transactions duty, Nagy said. A total of 50 billion forints will be collected from insurers and 300 billion from energy sector companies, with a large chunk to be collected from Hungarian oil and gas company MOL, the minister said. The government will collect 60 billion forints from retailers, 40 billion from telcos, 30 billion from airlines and 20 billion forints from pharmaceutical sector companies, not including small pharmacies, he added. The government will also reintroduce the advertising tax from 2023, raising 15 billion forints of budget revenue, Nagy said.
He said banks had accumulated extra profits because of rising inflation and interest rates, and insurers because of rising demand and inflation. The energy sector’s extra profits come from the increased extraction of hydrocarbons, he added.
Retailers have accumulated extra profits through an increased annual turnover, and telcos because of increased internet and phone use, Nagy said. Airlines are included because of the increase in passenger traffic and the pharmaceutical sector because of increased drug sales, he added.
Profits will remain with the companies, only extra profits will be taxed, and so it is not expected to burden consumers, he said.
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Source: MTI