Hungary is severely curtailing local governments’ taxing power in an attempt to preserve tax breaks and favorable tax regimes approved by the national government during the coronavirus pandemic.
The central government published a decree on December 1 banning local governments from raising local and municipal taxes, introducing new taxes, or abolishing existing tax breaks and exemptions in 2021. The decree is set to expire February 8, 2021.
In a December 3 release, the government said the decree targets “left-wing cities and districts” that had raised or plan to raise taxes to combat budget shortfalls resulting from the pandemic.
“In order to protect the population and businesses, we had to order a tax increase stop,” András Tállai, state secretary for parliamentary affairs at the Ministry of Finance, said in the release.
In a November 30 address to parliament, Finance Minister Mihály Varga said the government’s strategy to overcome the coronavirus-induced recession has been tax reductions, increased support to families, and assistance for businesses and investment. He said there are no plans to reduce public funding or increase taxes during the crisis.
Hungary has issued about HUF 4 trillion ($13.5 billion) in tax relief for employers in sectors disproportionately affected by the crisis, including tourism and hospitality, and individuals over the last year. However, in April the government announced that it would tax banks and multinational corporations to pay for nearly HUF 2 trillion in economic relief. The government also provided social contribution tax relief, slashed VAT on some products, cut small business taxes, and introduced tax exemptions for distillers of the national drink and companies that reinvest profits in Hungary.
Izer Norbert, secretary of state for taxation, told an online Joint Venture Association tax conference that a slew of new and extended tax relief measures would save businesses about HUF 400 billion in taxes this year, according to a December 1 MOF release.
Tállai called it “incomprehensible” that some local governments — including the capital city of Budapest, which is majority controlled by the political opposition — want to raise taxes. Budapest Mayor Gergely Karácsony "sits on hundreds of billions of government securities and tens of billions in cash, yet he is considering a rough tax increase, which he would cynically call a restart tax,” Tállai was quoted as saying in the December 3 release.
In October the Budapest City Council was considering a 0.5 percent “recovery tax” on large businesses that were shielded from the worst of the pandemic to recoup a HUF 69 billion shortfall and counter a sharp decrease in tax revenue. Karáscony said in an October presentation to the Metropolitan Interest Coordination Council that governments should support ways to share the public burden through temporary tax increases.
The MOF expects a 6.4 percent economic contraction this year, equivalent to a loss of HUF 1.7 trillion in revenue, though government expenditures have increased, Varga said in his parliamentary address.
In March the parliament — controlled by ruling party Fidesz — granted Prime Minister Viktor Orbán the power to “rule by decree” and sidestep the legislature to halt existing laws.