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“The Government’s goal is to protect the results that the economy has achieved to date; the economy grew by 5.3 percent in the first quarter of this year, but according to certain international forecasts the economic growth of the global economy and the eurozone are both experiencing a slowdown, and this is why the Government has drawn up the Economy Protection Action Plan”, Minister of Finance Mihály Varga said at his annual hearing before Parliament’s Economic Committee on Wednesday.

At his annual hearing, the Minister pointed out: The main elements of the 13 plus 1 point Economy Protection Action Plan include the simplification of taxation, the reduction of certain taxes and the merging of taxes, in addition to which the rate of social contribution tax and small business tax (KIVA) will be reduced, the plan will enable the abolishment of the simplified business tax (EVA), and the Cabinet will also be initiating the abolishment of the payment of tax deposits. According to plan, the level of VAT on accommodation services will be reduced to 5 percent, and people constructing homes in small settlements will be eligible for a VAT rebate of up to 5 million forints (EUR 15,500).

“The GDP data for the first quarter indicates that the Hungarian economy will be able to continue to grow at around 4 percent in future”, the Minister of Finance emphasised.

He pointed out that employment has increased significantly in recent years, adding that the advantages gained through job creation must be preserved.

Mr. Varga reported on the fact that as the first measure of the Economy Protection Action Plan, the social contributions tax will be cut by 2 percentage points from 19.5 percent to 17.5 percent from 1 July 2019, leaving 144 billion forints (EUR 447 million) with private sector enterprises in 2019 and 156 billion (EUR 485 million) in 2020. The rate of small business tax (KIVA) will be reduced from 13 percent to 12 percent from 1 January 2020, affecting some 40 thousand enterprises.

The Finance Minister indicated that the Government has also set the simplification of taxation as one of its goals and the number of tax types will also be reduced, as a result of which the simplified business tax (EVA) is expected to be removed from the tax system. The Government is also initiating the abolishment of advance tax payments, enabling enterprises to pay their taxes 5 months later, together with their May tax returns. In the interests of the further development of the tourism sector, the rate of VAT on accommodation services will be reduced from 18 percent to just 5 percent.

The Government also wishes to promote the construction of new housing and the extension and refurbishment of existing housing in small settlements, in the interests of which up to 5 million forints in VAT will be refunded with relation to construction projects of this kind. In future, private enterprises will also be eligible to receive funding for the construction of workers’ accommodation, the Minister of Finance added.

Until the end of 2022, the Government wishes to gradually reduce the limit above which enterprises are eligible to apply for development funding, which will affect 6500-7000 enterprises, he indicated.

Mr. Varga highlighted the fact that the Government is also reinforcing the loan support guarantee system, and both the Garantiqa loan guarantee company and the Agricultural Enterprise Loan Guarantee Foundation will be receiving significant increases in capital.

The Minister said the Government is launching a ten-year programme to expand Hungary’s agricultural irrigation system, within the framework for which it will be spending 17 billion forints (EUR 52.8 million) on developing the Hungarian irrigation system in the period 2020-2030. The Government will be spending 157 million forints (EUR 488 million) on funding research and development in 2020, 32 billion (EUR 99.5 million) more than this year.

He also spoke about the fact that the new government bond issued on Monday, the very high interest Hungarian Government Bond Plus, is already a great success, and the Government aims to make the financing of the country’s sovereign debt more secure through the launching of the new bond.

In reply to a question from the Committee, he said the Government has so far drawn down 24.9 million euros from the credit line made available with relation to the Paks Nuclear Power Station project, but has already repaid the sum.

Deputy Chair of the Committee Tamás Mellér (Párbeszéd) said the country had achieved little in recent years with relation to the cohesion process.

In contrast, according to the Committee’s other Co-Chair, Sándor Hadházy (Fidesz), current economic policy is a success, and the Economy Protection Action Plan serves to protect the result achieved so far.

Mihály Varga also appeared before the Budget Committee, where he highlighted: A secure budget has been drawn up for 2020 with a target deficit of one percent of GDP and a similar reserve. He added that the Hungarian economy is in a good position, but we must face the challenge of how to maintain our current rate of growth of 4-5 percent.

According to the Minister, it is the good state of the Hungarian economy that is enabling the setting of an ambitiously low 1 percent target deficit in 2020, and in reply to a question concerning the high level of reserves planned for next year, he indicated that it could provide the Government with more room for manoeuvre in case of a possible larger global slowdown.

In reply to questions concerning his opinion on the suggestion by the President of the Court of Auditors that a portion of salaries should be transferred to savings accounts, the Minster of Finance stated: “The Government has always supported the fact that people should be free to tie down their incomes”.

At the beginning of the session, Committee Chair László Varjú (Democratic Coalition) presented the Minster of Finance with a list of 29 questions mainly pertaining to residency bonds and the budget deficit, arguing that the residency bonds had been expensive, and the Government could have saved 60 million forints (EUR 186,000) through the use of other instruments.

With relation to residency bonds, Mr. Varga said that in his opinion it was a useful tool and a useful bond, with a face value of 1.84 billion euros in residency bonds issued between 2013 and 2017, with a lower rate of interest that that of the earlier IMF loan.