Hungary High Inflation ‘Temporary’

Hungary’s current high level of inflation is temporary and, as long as the central bank makes full use of the tools at its disposal, consumer prices may return to around 3% next year, the finance minister said.

The central bank has already made a move to reduce inflation, having been the first European central bank to hike the base rate, Mihály Varga said in an interview to the website of private broadcaster atv. Varga insisted that lowering the VAT rate would not reduce prices in the long term because prices depend on market trends rather than government interventions, he said. Since 2013, tax policy has been based on the principle that resources required for public spending such as health care, defence and education, are collected from consumption taxes rather than business and income taxes, he added.

Hungary’s tax policy is geared to boosting labour, and this is why the VAT rate is higher than elsewhere in the European Union, he said. At the same time, Hungary has the lowest corporation tax and the third lowest personal income tax in Europe, he added. “I agree with the central bank that higher inflation is dangerous,” he said, adding that the budget deficit, too, would end up higher, like in much of the rest of Europe, though Hungary would return to 3% deficit level in 2024.


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