Hungary: OECD issues recommendations mirroring the concerns of EU institutionsFebruary 22, 2013
In its Going for Growth 2013 report (2013 Going for Growth: Reforming for a strong and balanced recovery) issued on 15 February 2013, the OECD gave country-specific recommendations to Hungary.
The following priorities were identified with regard to tax policy:
- Reduction of the tax wedge on labor income
- Elimination of disincentives to continued work at older ages
- Implementation of a more growth-friendly tax system by shifting the tax burden away from direct income toward consumption, immovable property and the environment
With regard to the first recommendation, the OECD’s analysis presents that, in 2011, Hungary lowered the tax wedge with a shift to a flat-rate personal income tax and tax reliefs for families with children. In contrast with this, in 2012, the wedge on low-income workers increased with the removal of the earned-income tax credit.
The OECD’s study notes that the “Action Plan to Save Workplaces” has introduced targeted reductions in social security contributions for groups “weakly attached to the labor market.”
On the second point, reduction of disincentives to continued work at older ages, the OECD recommends to “make all pension benefits liable to income tax, index the statutory retirement age to gains in life expectancy and close pathways into early retirement for women and special regimes.”
The OECD recommendations echo the opinion of the European Commission and the European Council delivered in 2012.
Both organizations urged Hungary to make the tax system more employment friendly and lower the tax wedge on low-income earners by shifting the tax burden to energy and property taxes.
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