The fiscal status quo for 2015: more taxes, more populism, little reform

HUNGARY - In Brief 22 Oct 2014 by Istvan Racz

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Fact: The draft budget for 2015 is not publicly known yet. This is normal in an election year, when the legal deadline for the draft’s delivery to parliament is end-October. But the draft is now at the Fiscal Council for preliminary assessment, implying that the usual leaks have started, followed by various semi-official hints and statements. And the tax laws proposed by the government for 2015 were presented to parliament yesterday, followed by the announcement of a reform of government administration this morning. Momentarily, the key points appear to be the following: - Somewhat curiously, the budget plan has a name. It is officially called ’the budget of making the banks accountable’. - The government expects 2.5% real growth in GDP and also 2.5% average CPI-inflation for 2015, after 3.1% growth and zero inflation in 2014. - Old-age pensions, which represent one-fifth of total expenditure, are proposed to rise with expected inflation as usual, i.e. by 2.5% next year. This follows a 2.4% pension hike in 2014. - No major tax cuts are proposed for 2015, except for the cut of the VAT for the wholesale trade of large animals and basic meat products to 5%. In addition, companies will get corporate tax refunds after donations made to university education. We estimate the potential negative revenue impact of these two measures at HUF 30 bn (0.1% of GDP) annually. - The extraordinary bank tax will remain, although OTP will be able to reduce its tax liability by some HUF 5 bn, on account of losses in Ukraine. - Three new indirect taxes are proposed. As a new charge on the financial sector, 25% of the commissions from the sale of investment funds by domestic fund managers wil...