The Hungarian government has announced a nearly $30 billion economic relief package that provides some tax relief in addition to wage relief and assistance for sectors hit hard by the COVID-19 pandemic.
The announcement comes just days after news that nearly HUF 2 trillion (about $6 billion) in coronavirus and economic relief will be funded by additional taxes levied on multinational retail companies and banks.
The five-point plan, announced by Prime Minister Viktor Orbán April 6, aims to stimulate the economy by preserving and creating jobs, offering government-backed loans to Hungarian companies, reintroducing 13-month pensions for retired seniors between 2021 and 2024, and providing tax reductions and deferrals. Orbán said the plan will reallocate 18 to 20 percent of Hungarian GDP and increase the 2020 budget deficit from 1 percent to 2.7 percent.
The government will pay over 70 percent of employee wages for three months for firms forced to shutter or cut hours because of the coronavirus, László Palkovics, minister for innovation and technology, said April 7. Hungary will also contribute HUF 450 billion toward creating jobs, HUF 600 billion to aiding hard-hit industries like tourism and hospitality, and another HUF 2 trillion toward government-backed loans available to Hungarian companies.
Hungary will also introduce tax relief by lowering the employer social contribution tax by two percentage points starting July 1, speeding up VAT refunds, and providing deferred or installment tax payment options, said Palkovics. The government also announced April 7 that the deadline for submitting tax returns has been postponed to September 30.
The sweeping economic stimulus package follows the opening of two funds to aid in economic recovery and specific coronavirus relief. Gergely Gulyás, Orbán’s chief of staff, said in a press conference April 5 that HUF 1.345 trillion will go toward economic stimulus, while an additional HUF 663 billion will go toward containing the virus.
To fund the coronavirus relief package, the government intends to collect HUF 36 billion in taxes from multinational retail chains like supermarkets and HUF 55 billion from banks, Gulyás said.
“We are unsure what the form of this tax will be, but most likely, it will be a reincarnation of a similar tax on retail companies which was already in force between 2010 and 2012. If so, this is expected to be a tax on turnover, possibly levied in a progressive manner,” Tamás Fehér, tax partner at Jalsovszky Law Firm in Budapest, told Tax Notes regarding the multinational chain tax. For banks, the additional tax will “practically double” the special taxes they pay, he said.
Fehér stressed that the new legislation has not been made public yet, so many details remain unknown.
Up to HUF 34 billion in revenue from an automobile tax paid by car owners to local governments will be rerouted to the central bank, Gulyás said. Fehér said that although the diversion of this revenue amounts to only a small percentage of municipalities’ total income, many are already underfunded and could be affected by “even a modest cut in their income.”
Additionally, political parties will lose 50 percent of their state funding, which will free up HUF 1.2 billion for the relief fund. These cuts will mostly affect opposition parties, Fehér said. “Due to the imbalanced access to funding between the existing parties in Hungary, the cut in government funding for the parties will especially hit the opposition parties. It is difficult not to see the political agenda behind this cut by the ruling Fidesz party,” he said.
The new measures will go into effect on April 15 or May 1, according to a release from the prime minister’s office.
For the economic stimulus package, the Hungarian government will reallocate HUF 922 billion from government departments and HUF 423 billion in revenues from the National Employment Fund toward preserving jobs and giving healthcare workers pay increases and bonuses.
The government said it will ensure a 20 percent pay increase for healthcare specialists by November and a bonus of HUF 500,000 for all healthcare workers, slated for either June or July. Healthcare worker bonuses are costing the government HUF 70 billion.
The relief packages come almost a week after Hungary’s parliament granted Orbán the power to “rule by decree” and sidestep the legislature to halt existing laws.