Hungary’s tax system could see notable changes under a set of proposals outlined earlier by the Tisza Party, according to an analysis by Niveus Consulting Group.
According to expert assessments, the proposal amounts to a redistribution-focused tax reform built on a dual logic: reducing the burden on consumption and low-income earners while increasing contributions from higher-income individuals and wealth holders, said Lajos Bagdi, a partner at Niveus.
A central component of the plan is a significant reduction in value-added tax, or VAT, on basic food items, cutting the rate from 27% to 5%. While this could result in substantial short-term revenue losses, it may play a role in curbing inflation. Analysts caution, however, that it remains uncertain to what extent retailers would pass on the tax cuts to consumers through lower prices, posing a key risk.
Additional proposals include exempting pharmaceuticals from VAT and applying reduced rates to certain essential energy sources, such as firewood. Niveus estimates the total cost of these measures could reach between HUF 800 billion and HUF 1 trillion annually.
Another major pillar of the program is the introduction of a tax credit for minimum wage earners. This measure could help reduce income inequality by increasing net earnings for low-income workers while also encouraging labor supply. The overall impact on personal income tax revenues could approach HUF 500 billion, according to the analysis.
The most frequently cited and politically sensitive element of the reform is a proposed wealth tax, which could impose a 1% levy on assets exceeding HUF 1 billion. While such a tax could provide a stable source of revenue less dependent on economic cycles, it also carries risks, including capital flight and increased tax avoidance. Annual revenue from the measure is estimated at HUF 100 bln to HUF 150 bln.
Bagdi noted that the feasibility of the program will depend heavily on broader economic factors, including efforts to reduce the size of the shadow economy, secure access to European Union funding, and accelerate economic growth. Without progress in these areas, the combined effect of VAT and personal income tax cuts could significantly widen the budget deficit.
Overall, the program appears clearly expansionary, aimed at stimulating demand. However, it could result in annual revenue losses of up to HUF 1.5 trillion, with the proposed wealth tax seen more as a symbolic measure than a major source of fiscal financing, according to Niveus.
