In the article "Hungary Goes for Growth", published on 15 June in The Wall Street Journal, the new Hungarian economic plan, in which Prime Minister Viktor Orbán will introduce a 16 % flat tax from 2011, cut the small business rate to 10 %, freeze government expenditure, and cut the salaries of state employees by 15 %, is seen as a glimmer of hope in the economic policy mess in Europe.

Hungary was hit especially hard by the financial panic of 2008 after foreign sources of funding dried up, reports the journal. The collapse led to the EU-IMF joint credit line of 20 billion dollars. Since then Hungary has reduced its spending and has not drawn on the full amount of the credit. According to the forecast of the National Bank, the deficit will be 4.5 percent of the GDP by 2011, compared to Britain's 12, Spain's 11 and the United States' 10.6 percent.

The new government is quite right to want to cut the deficit, while at the same time making every effort to stimulate the economy. "Budapest does not doggedly follow the IMF," reports the American financial journal. The present Hungarian income tax is the highest in the OECD and only gives an excuse for tax evasion and finding loopholes.  

It is our understanding that the IMF will only agree with the new tax policies if it sees significant economic growth in Hungary. As a creditor the IMF wants satisfactory returns in the short term and Budapest wishes to produce the necessary amount (approx. 200 billion forints) by levying a special tax on the banks. However, there are fears that the taxes levied on the banks, constituting a 1,400 % increase, will curb lending since the entire annual profits of the banks come to 300 billion forints.

"Hungarians instinctively understand the advantages of tax cuts. Unfortunately, their creditors do not," ends the article in The Wall Street Journal.