Weaker forint, a struggling economy, long-lasting extra taxes in Hungary?

Fitch Ratings affirmed Hungary’s investment grade sovereign rating after Moody’s and Scope Ratings did alike. However, the American credit rating agency sees significant challenges in Hungary’s economy. One is the Orbán cabinet and its unorthodox economic policies.

Are the Orbán government’s policies a threat? Is a weaker forint coming?

According to portfolio.hu, Fitch Ratings has kept Hungary in the BBB category with negative prospects since January 2023. Based on their analysts, Hungary’s budget deficit will decrease in 2024, but the state debt will increase. They do not expect the Orbán cabinet to revoke the so-called excess profit taxes because the administration needs that money badly for pensions and public services.

Fitch considers the decreasing global demand for batteries a risk. According to their experts, that trend may make economic growth more difficult in 2025-2026. Moreover, they calculate an EU-Hungary clash due to Brussels’ policies concerning the import of Chinese electric cars. For example, the Chinese Polestar will enter the Hungarian market in 2025, based on a recent announcement.

According to Fitch, Hungary has negative prospects because of the state budget and the high rate of state debt.

Hungary at EU forefront of economic whitening, says ministry

Hungary is among the European Union countries that have made the most progress in whitening their economy since 2010, the finance minister told a conference on Wednesday, noting that the VAT gap has fallen to 4.4 percent from 22 percent and the rate of tax deductions as a percentage of GDP has decreased to 35 percent from 40 percent.

Hungary’s government overhauled the tax system in 2010, shifting the emphasis from taxes on labour to consumption taxes, Mihály Varga said on the opening day of the General Assembly of the Intra-European Organisation of Tax Administrations (IOTA) in Budapest.

The highest personal income tax rate has fallen to 15 percent from 36 percent since 2010, while the corporate tax rate has been cut from 20 percent to 9 percent, the lowest in the EU, Varga said. Meanwhile, payroll taxes have been slashed from 33.5 percent to 13 percent, he added.

It was thanks to these measures, Varga said, that Hungary ranks 11th out of the 38 OECD countries. The presidency of the IOTA in the year-long cycle ending on July 1, 2024 was held by Ferenc Vágújhelyi, head of national tax and customs authority NAV.

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