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Fin Min Varga: Hungary Tax-to-GDP Ratio Reduction Second-biggest in OECD Ranking

MTI-Hungary Today 2020.09.04.

The OECD has acknowledged that Hungary’s tax burden relative to GDP was reduced by the second-largest degree, Finance Minister Mihály Varga told MTI on Friday.

Varga cited the OECD Tax Policy Reforms 2020 study published on Thursday which shows Hungary’s tax-to GDP ratio fell by 1.6 percentage points in 2018 compared to 2017.

In the study covering 40 countries, including OECD members, the decline was the second-biggest after the United States, where the ratio dropped 2.5 percentage points. The third-biggest drop, of 1.4 percentage points, was seen in Israel.

Varga said that Hungary’s government had continuously reduced the tax burden on labour, companies and households since coming to power in 2010. While taxes have been cut, employment has increased, the economy has grown and wages have risen, he added.

He said that the OECD study shows Hungary’s tax-to-GDP ratio fell not only in the short term, but in a ten-year period, too.

Hungary’s tax-to-GDP ratio fell from 39.5 percent in 2008 to 36.6 percent in 2018, a decline of 2.9 percentage points, the second-biggest drop in the OECD ranking after Ireland.

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Varga pointed out that of 39 countries ranked in the ten-year tax-to-GDP comparison, ratios had risen in 28 countries, including in France, Greece, Portugal and Slovakia.

The OECD study acknowledged cuts in payroll tax and in corporate income tax, of which the latter, at 9 percent, is now the lowest rate in the European Union, he said.

The OECD study noted a reduction in employers’ social security contributions rates in Hungary from 22 percent in 2017 to 19.5 percent in 2018, a reduction in the corporate income tax to 9 percent in 2017, and a decrease in the VAT rate on selected products in 2018.

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Varga said the government had continued its policy of tax cuts this year, too, exempting mothers of four or more children from the personal income tax and pensioners returning to work from contributions, as well as reducing the Small Business Tax (KIVA) rate from 13 percent to 12 percent, shaving 9 percentage points off the VAT rate on commercial accommodations and a further 2 percentage points off the payroll tax.

He added that the government had left more than 100 billion forints (EUR 278m) with families and businesses as the result of tax relief to ease the economic fallout from the pandemic.

In the featured photo: Finance Minister Mihály Varga. Photo by Péter Komka/MTI