Zoltán Kovács: Good afternoon, Ladies and Gentlemen. I would like to welcome you to today’s event and greet our guests, as we sign the renewal of the cooperation agreement on taxation between the Hungarian government and the Hungarian Chamber of Commerce and Industry. I would like to welcome Mr. Viktor Orbán, Prime Minister of Hungary, Mr. Elek Nagy, President of the Hungarian Chamber of Commerce and Industry, and all our distinguished guests. First, I would like to invite Mr. Elek Nagy, President of the Hungarian Chamber of Commerce and Industry, to make his statement.
That’s also fine, but we agreed to do it the other way around.
Zoltán Kovács: Let’s do it that way then.
Thank you very much.
Elek Nagy: Well, that’s because we established a tradition last time that the Prime Minister would start, and if something works well, then we shouldn’t change it, so we agreed on that with the Prime Minister.
That’s one reason. The other reason is that I have a difficult task ahead of me, and it’s not certain that I’ll succeed, because we’re in a mournful mood, and we should be talking about important, good news while in a mournful mood. This isn’t an easy thing to do. We’re facing a difficult morning. Yesterday evening, the whole country felt like it was shot in the lungs or had a heart attack; but when we met this morning, the President and I agreed that we won’t get anywhere by lamenting the situation, there’s work to do, the work has to be done. The plan for today, regardless of what happened on Sunday afternoon, was that on Monday we – the Chamber of Commerce and Industry and the Hungarian government – would reach an agreement. So, since in dramaturgical terms this is a difficult situation, and I’m more of a stage performer than the President is, I thought it would be better for me to start today’s press conference – darn it!
So first of all, I would like to say a few words about the context of this agreement, because for three years now, since the beginning of the war, the Government has been struggling with a very difficult dilemma – and we are finding this dilemma, this difficulty, increasingly challenging. We can all see that Europe is marching towards a state of war. Even those of you who are not sitting at the negotiating table, but are only listening to the news coming from it, can relate to this. The rhetoric is becoming increasingly harsh, we are faced with increasingly forceful war rhetoric. We have now reached the point at which expressions such as “wartime economy” are commonplace in European politics, and statements such as “we must be ready to fight a war by 2030” no longer provoke heightened interest, but have become everyday political discourse. This has serious consequences for economic policy, because economic policy is not only about today, but also about tomorrow; we need to know what we are preparing for. All economic policy is based on some kind of plan, and at the moment the situation in Europe is such that the openly stated Brusselite plan is to build a war economy. Documents are being adopted on this, and leaders are making statements about it. This encompasses many things. You too are aware that this includes Ukraine’s membership of the European Union, and the maintenance of a huge Ukrainian army – an army of between 800,000 and one million soldiers, funded by the EU. This will involve redirecting 20–25 per cent of the budget to Ukraine in the next seven-year EU budgetary period. So this way of thinking has a number of very serious financial consequences. Hungary now faces the dilemma of how to respond to this situation: whether we should accept that Europe will have a wartime economic policy, that Hungary cannot opt out of this, that we should fit ourselves into this framework and try to make the most of the opportunities available within it.
The other option before us is to not accept this. But then we have to ask ourselves whether, while the entire European Union is moving towards a war economy, it is possible for us to opt out and build a different kind of economic policy – not one based on Brussels, but, say, a national one. This is the great dilemma. The truth is that no matter which option you choose, events are constantly changing, and you have to keep revising your decision to see if your original choice is still valid. Earlier we made a decision with Minister for Economy Márton Nagy, whereby we decided that Hungary is capable of building a national Hungarian economic policy instead of a Brussels war economy policy. So this is a possibility. But we have to reexamine this again and again, to see if our statement is still valid. Now that we have reached agreement on tax issues with the Chamber of Commerce and Industry, the Government has put this matter on the agenda. We consulted at length with Minister Márton Nagy on this, and we concluded that the basis of today’s agreement is that it is possible to pursue an economic policy that does not move in the direction of war, but instead serves Hungary’s national economic interests. And we maintain this, even if we clearly cannot escape the effects of the war. Here in Hungary I would not even call this a professional debate, but rather political wrangling over the impact of the war on the economy. In my opinion no sane person would question that the war has a negative impact on the Hungarian and European Union economies; yet even with economic growth blocked by the war, the Government says we can and must persevere with our own non-war-related national economic policy. This means that we do not want to give up on the goals we set earlier. I will not talk about these unchanged goals here, because you can read about them in the budget Act and in the government decisions that have been made public in the meantime – such as tax allowances, the Home Start programme, the fourteenth month’s pension, and so on and so forth. The reason we have gathered here today is not this, but instead to discuss what this means for Hungarian businesses. When we say that we do not want to give up on our goals, it means that we promised businesses – and agreed with them – that we would reduce their tax burden and cut back on the bureaucracy they have to deal with. These negotiations have now reached a very important stage, and we have been able to agree on eleven points with the Chamber of Commerce and Industry.
We are here today to present to you these eleven points, which were drawn up in line with our previous commitment to reduce the tax burden on businesses. As you know, I was able to make an important announcement earlier with President Elek Nagy, which concerned subsidised loans with a fixed interest rate of 3 per cent. That was the first step. This is now the second, and there will be more to come later. In this second phase, at the request of the Chamber, we are concluding an agreement on tax reduction and simplification estimated to be between 80 and 90 billion forints. There are eleven measures in total. I will now briefly outline these.
The first is a phased increase in the threshold for VAT liability. The Chamber requested that we not only make decisions for one year, but also, for the sake of predictability, provide forecasts for the second and third years where possible, and reach an agreement. This means that in 2026 the VAT liability threshold will be 20 million forints, in 2027 it will be 22 million, and in 2028 it will be 24 million. These are increasing numbers, but this is good news, as it does not mean an increase in the burden, but an increase in the available exemptions.
The second point: we will increase the standard expense allowance for flat-rate taxpayers. Here, too, we are agreeing on three years, raising it to 45 per cent in 2026 and 50 percent in 2027, with 2028 still under discussion.
Third point: we are decreasing the taxable income used to calculate social security contributions for full-time sole traders. According to our calculations, this will reduce the monthly tax burden for 140,000 sole traders.
The fourth point is that we are expanding the circle of those eligible for the small business tax. This means that approximately 4,000 to 5,000 businesses will be able to enter this more favoured group. So, to repeat, we will expand the circle of those eligible for small business tax. This will bring 4,000 to 5,000 medium-sized enterprises into the small enterprises category. This will bring them advantages.
Point five: We will support green investments and remedial measures for environmental damage through tax incentives of 100 million forints. Translated into plain language, this means that if someone carries out a brownfield investment and therefore needs to reduce associated environmental impact or remedy pre-existing damage, they can deduct the costs of this from their taxes. We expect this to give impetus to brownfield developments.
Point six: we are giving Hungarian energy suppliers tax incentives for infrastructure modernisation. There are segments and sectors of Hungarian industry that operate at a high profit, and we are imposing all kinds of special taxes on them and involving them in public burden sharing above and beyond the general tax burden. These sectors include banks, large international energy suppliers and businesses. The response has been that while this is great, it will also hinder the development of businesses if certain energy and infrastructure investments are not made. Therefore, at the request of the Chamber, we will use tax incentives to encourage large energy suppliers to make these investments, thereby helping businesses. This was the Chamber’s request, we accepted it, and we hope for developments. So we truly hope that everyone here will act according to business logic, meaning that energy suppliers will increase their levels of investment rather than simply their profits.
Seventh point. We will raise the retail tax thresholds, thereby reducing the burden on 3,500 businesses, according to our calculations. This concerns retail trade; the rate will remain unchanged, we will not touch the rates, but we will raise the tax thresholds. This will result in more favourable taxation for 3,500 businesses.
Our eighth agreement is that, with a heavy heart, I have accepted that we will postpone the increase in fuel excise tax by six months. The tax system in Hungary is a sensitive issue, and it is good to have some kind of organising principle in it. We do not always have to fight the same battles over and over again, but we can know that there is a principle, and it will be followed – for example, that excise duty should rise in line with inflation. This should happen from January 1. The Chamber is asking for this not to happen. I cannot ignore the fact that this principle must remain in place, but what I can do is postpone it for six months, and then we will sit down together again at the end of the first half of the year to discuss it. And if the Chamber’s request is still justified, then we can continue; but for now we are postponing the excise tax increase on fuels for six months – specifically at the request of the Chamber. This represents a loss to the budget of 20 billion forints in tax revenue.
Ninth point: we will significantly reduce the administrative burdens on businesses. This means that we will raise the corporate tax advance payment threshold from 5 million forints to 20 million forints. This will benefit twenty thousand companies.
As the tenth point, the turnover threshold for simplified reporting by micro-enterprises will be increased from 150 million to 180 million forints. This means that approximately ten thousand businesses will be able to opt for simpler and faster administration.
Finally, the eleventh point of our agreement is that we will implement a special reduction in administration for eighty thousand sole traders. This means that for them the tax authority [NAV] will automatically handle the registration of insured persons, and the frequency of social security and contribution declarations will be reduced to quarterly. The President of the Chamber will explain to you exactly what this means and why it is so important.
We are talking about an additional expenditure of 80–90 billion forints, the source of which is the increased bank tax. Here I foresee a debate, increasingly in the sphere of Hungarian economic policy. This is a meaningful debate, so I do not want to dismiss it. The debate is about whether the bank tax can be increased further, if so, to what extent, and what the ratio should be between taxation on manufacturing industries and taxation on the financial sector. Of course we are familiar with the fundamentals of modern economics, and it is impossible to imagine any economic system without a well-functioning, stable banking system; but we are still looking for ways to encourage as much production activity as possible through tax incentives. We consider the financial sector to be important, but only as a secondary consideration after this. I see another position emerging, which seeks to reduce the bank tax and make up for the budget shortfall by giving less support to businesses. So in the future we will be confronted with two approaches: one will seek to shift from the financial sector to the manufacturing sector; and the other will seek to shift from the manufacturing sector to the financial sector. Probably some kind of reasonable balance needs to be found. But for our part, since we support full employment, it is important for us that there are jobs; and jobs are mainly found in manufacturing and service industries, so those take priority.
Finally I would like to say that we hope to have more agreements like this with the Chamber. We have acknowledged that the Chamber has embarked on a new path, as we have heard from President Elek Nagy on several occasions recently. This is a different kind of Chamber than what it was before, and we see this as an opportunity. Until now, the Chamber has mainly participated in consultations on economic policy decisions. I think this is a good thing, and it should be continued and even strengthened, so that the Chamber can participate in the formulation of economic policy. The President and his colleagues are now also undertaking to participate in the management of the economy. So we hope that our next agreement will be about how we can transfer or share state economic management tasks with the Chamber. Negotiations on this are taking place in various working groups. I am convinced that in the longer term – especially in the current turbulent situation – it is in the interest of the Hungarian economy for the Chamber of Commerce to participate in both economic policy decisions and economic management, and even to have independent decision-making powers.
I would like to thank the President for the negotiations on what is now the second action plan and its successful conclusion, and I look forward to completing negotiations on the third action plan and reaching agreement on that as well. I believe that in the management of the Hungarian economy the participation of the Chamber, its leaders and its professional committees will be crucial, providing a particularly stabilising force, which Hungary will need in the coming period. President, thank you once again for this agreement.
