In the third week of March 2020, the prime minister of Hungary has announced that certain measures will be issued by the Government to ease the economic effects of the COVID-19 pandemic.
These measures included tax exemption from the fixed-rate tax of low tax-bracket enterprises (KATA) for more than 80 thousand small businesses until 30 June 2020. In addition to the above tax exemption, arrears incurred before 1 March 2020 are deferred, while the media and the hospitality sector will be exempt from contributions. Evictions and seizures are suspended, and tax enforcement is also suspended until the end of the emergency. The entitlement to health insurance and family support benefits provided with regard to the care and upbringing of children is also extended until the end of the emergency. Furthermore, the repayment of bank loans is also suspended.
The actions listed above became the first phase of the economic action plan, which is said to have three phases. The second phase was announced 6 April 2020, which contains 5 programs, amounting to 18-20% of the Hungarian GDP. The following programs are included in the second phase:
- Preservation of Workplaces. In case a company can only employ certain staff within shortened work hours, the Government is ready to take over part of the wage costs. This aid is provided for three months after the mutual application of the employer and the employee. The amount of the aid is 70% of the monthly absence fee determined on the date of the declaration of the emergency, minus the personal income tax advance and contributions determined in accordance with the general rules, either for 30, 40 or 50% of the lost working time. For this program, the Government expects to spend HUF 60 billion per month.
- Creation of Workplaces. The Government supports investments worth HUF 450 billion. The main goal of this program is to create the same amount of new jobs as the amount of jobs that the COVID-19 pandemic destroys in Hungary.
- Restarting Certain Sectors. This program affects sectors of the national economy that need to be restarted due to the present difficult circumstances caused by COVID-19. These include tourism, healthcare, food, agriculture, construction, logistics, transportation and the creative industries.
- Financing Companies. In this program the Hungarian State provides interest-rate and guarantee-subsidized loans to Hungarian companies. This aid is calculated to be worth more than HUF 2,000 billion.
- Helping Families and Pensioners. The prime minister announced the reinstitution of the earlier 13-month pension. In February 2021, in addition to the January pension, retirees will receive a 1-week pension and this will happen in 2022, 2023 and 2024 as well.
Due to the above programs, the deficit-to-GDP ratio of Hungary is raised to 2.7%, instead of the originally planned 1%. Until now the Hungarian Government has spent HUF 380 billion on defense equipment, preparation and the construction of epidemic hospitals. According to the current calculations, HUF 3,000 billion would be needed to protect and restart the economy, which makes this three-phase action plan the greatest governmental intervention in the history of Hungary.
By Eszter Kamocsay-Berta, Managing partner, KCG Partners Law Firm