The flat-rate personal income tax system has been a key growth-boosting factor, as thanks to the comprehensive income tax reform it is again worth creating and taking up jobs in Hungary, and thus there is a window of opportunity for escaping unemployment, economic slump and demographic crisis, Minister of State for Taxation and Financial Affairs Gábor Orbán said at a press conference in Budapest.

Gábor Orbán stressed that the extension of the family tax allowance to personal social contributions as of 2014 will leave annually HUF 53bn at families and that will obviously bolster consumer confidence and reignite growth. Under the current system, 20 percent of the wealthiest taxpayers provide some 60 percent of personal income tax revenues; accordingly, the bulk of income taxes continue to be paid by affluent people, so there was not a huge change in that regard, he added.

The former, extremely high tax rates dampened the performance of the group at issue and prompted them to hide their income and even to leave the country, Gábor Orbán explained. He emphasised that the tax system in place before 2011 expressly punished the performance and achievements of economic stakeholders and demanded too much of employees in lawful jobs while it also “opened wide the door to tax dodging for a high number of people.”

Former regulations disregarded the importance of job creation, they did not take into account the costs of raising children and thus punished those who decided to have children, Gábor Orbán stated. Therefore, the Government’s tax reform implemented changes designed to acknowledge and honour work and families, parallel to easing the tax burden of employees and enterprises.

In light of experiences it can be concluded that the flat-rate personal income tax system has been instrumental in preventing a deep slump of domestic demand during the crisis, moreover, retail sales have already been rebounding and that is why, the Minister of State stressed, the new personal income tax system can be regarded as one of the key growth factors. Through the transformation of the tax system the Government aimed primarily to make tax dodging unreasonable from both financial and moral aspects and to this end a realistic, viable, work-friendly and simple tax system had to be established.

Through the most significant tax cut in twenty years, the transformation of the tax system provided advantages for families with working parents who raise children and it leaves some HUF 500bn at households, Gábor Orbán said, adding that it is evident that a tax cut of this size exerts a positive effect on consumption and savings.

Family tax allowances provided extra income for taxpayer groups with high propensity to consume, which has been indispensable for restoring consumer confidence and in turn for placing the economy back on a growth path. Those who benefit from the abolition of the top income tax rate are now able to save a large share of their incomes. Both factors eventually translate into economic growth; the former rather in the short term, while the latter in the long term, the Minister of State concluded.

(Ministry for National Economy)