While Europe Tightens Its Belt, Hungary Lowers Taxes

The government has announced new subsidy, wage increase, and tax reduction programs for the new year. As a result, households will have a combined total of 2,000 billion forints (5 billion euros) at their disposal in 2026. In addition, thanks to corporate tax cuts and the reduction of bureaucracy, the government is leaving companies with around 90 billion forints (235 million euros), according to the latest analysis by the Oeconomus Economic Research Foundation.

In 2025, the government was quite active in the area of economic policy measures, but 2026 has also gotten off to a dynamic start, bringing with it the following changes, tax cuts, tax breaks, and wage increases:

• From January, tax breaks for families will double, meaning that a family with three children will receive an annual allowance of 2.4 million forints (6,300 euros).
• Mothers under the age of 30 with one child and mothers under the age of 40 with two children are now exempt from income tax for life.
• The increase in the minimum wage and the guaranteed minimum wage will begin: the minimum wage will rise by 11% to 322,800 forints (842 euros), and the guaranteed minimum wage by 7% to 373,200 forints (973 euros). With this increase, an average real wage increase of around 5% is expected for 2026.
• The 11-point program to reduce enterprise taxes is launched, meaning a savings of 80 to 90 billion forints (209 million to 235 million euros) per year for small and medium-sized enterprises.
• The entire 13th month pension and the first installment of the 14th month pension will be paid out.
• The general pension increase will continue, bringing the average pension to over 250,000 forints (652 euros).
• The housing allowance program of 1 million forints (2,600 euros) net for public sector employees will be launched.
• The six-month weapon bonus for members of the armed forces and law enforcement agencies will be paid out.
• The salary increase for teachers will continue, bringing the average salary for educators to almost 940,000 forints (2,500 euros) next year.
• The 15 percent salary increase for public sector employees in the social and cultural sectors will come into effect.
• The three-stage wage increase for judicial employees will also continue. Between 2025 and 2027, this will mean a wage increase of 48 percent for judges, 89 percent for court clerks, and 100 percent for court staff.

In their analysis, Oeconomus points out that the government’s fiscal incentives come at a time when several European countries are planning tax increases or new taxes, as public debt has risen dramatically in recent years. In addition, the economic difficulties caused by the war in Europe and the financing of the war are forcing many governments to raise taxes.

According to Oeconomus, this is not exactly the best recipe in times of a prolonged economic downturn:

The Keynesian theory (John Maynard Keynes) states that weak economic performance and recession are due to insufficient aggregate demand, i.e., people and businesses are not spending enough money.

Keynes says that governments should do the following in times of recession: (1) increase public spending, (2) cut taxes or at least (3) avoid tax increases, (4) maintain a manageable budget deficit for a limited period. The aim is to stimulate demand, increase employment, and prevent the economy from spiraling downward.

Why are tax increases harmful in times of recession according to Keynesian logic? Higher taxes reduce disposable income, households spend less, companies generate less revenue, and firms reduce investment and jobs. This leads to a worsening of the recession and thus to exactly the opposite of what would be necessary in times of weak demand. From a Keynesian perspective, tax increases during a recession or depression reduce demand precisely when the economy needs stimulus. According to Keynes, governments should accept short-term deficits in bad times and only consider tax increases after the upturn, not during the crisis.

Via Oeconomus.hu, Featured image: Pexels

The post While Europe Tightens Its Belt, Hungary Lowers Taxes appeared first on Hungary Today.

Source link