World News

Hungarian PM Orban signals tax cuts, tough times for economy

By Krisztina Than

BUDAPEST (Reuters) – Hungary will cut taxes on labor and for small firms, Prime Minister Viktor Orban said on Sunday as he warned of tough times ahead for a domestic economy hobbled by stagnation in the euro zone.

Hungary’s economy expanded 4.9% last year but on Friday the government cut its forecast for 2020 from 4% to 3.5%, which would be the slowest growth rate in four years.

“I see dangerous years ahead … We need to take serious steps to defend what we have achieved so far,” Orban said in an annual state of the nation speech that reviewed his decade in office.

“We will have to focus our efforts on preserving jobs in 2020 and also perhaps in the years after… In such times, tax cuts are needed. So, we will reduce the tax on labor and on small businesses,” he added without giving details.

A nationalist who has often clashed with European Union authorities over his clampdowns on immigration, Orban has pursued a mix of go-it-alone economic policies, shifting Hungary’s debt financing towards domestic borrowing while keeping the budget deficit low.

But his critics say corruption has increased, and oligarchs close to him have benefited significantly from state contracts and EU funds.

Orban, who had enjoyed consistently high popularity ratings since first being elected, said a key question was if Hungary could maintain growth against the backdrop of stagnation in the euro zone, its main export market.

He also cited “demographic decline” and the climate crisis as threats.

He said the government had approved a climate protection plan that included tighter environmental regulations for multinational firms, a sixfold increase in solar power capacity over 10 years, and the launch of a green government bond.

Think tank Eurasia Group said only an economic downturn could endanger Orban’s solid base of support.

“For this reason, the government will continue to use fiscal policy to stimulate the economy while the central bank will keep interest rates low, despite rising inflation,” it said in a note to clients.

Hungary’s next national elections are due in 2022.

(Reporting by Krisztina Than; editing by John Stonestreet)