Viktor Orbán wrapped his nasty Christmas gift for local governments very well

Most of it was already known

In line with the promise made in his interview on Friday morning, Viktor Orbán set out on Saturday the latest economic protection measures, in 4 points.

1. The moratorium on loans to families and companies will extend until July 1.
2. Companies that were forced to close temporarily due to epidemiological measures are supported by the government in both December and January by resigning and taking on two-thirds of wage costs. In addition to restaurants, hotels and tourism, the tax exemption and salary subsidies will be extended to private bus companies that are forced to take a break.
3. Business taxes for small and medium-sized businesses and sole proprietors will be cut in half from January 1, as they provide the most jobs and are the most vulnerable at the time of the epidemic. Municipalities with fewer than 25,000 inhabitants will receive government support and the financial situation of the larger municipalities will be reviewed individually.
4. Families raising children and hoping to have children are assisted with a discounted home renovation loan of up to HUF 6 million with an interest rate of up to 3%. Of this amount, 3 million HUF is a non-refundable grant, which can be used at the end of the renewal and automatically reduces the loan amount.

It is mainly about expanding and complementing the economic protection measures that have already been taken, based on which we can say that the government is only advancing cautiously and gradually in the new economic support measures,

because it is questionable what the 2021 budget can support (whose deficit target has just been raised by the government to 6.5% of GDP).

Three-measure creased seam

the First point in fact, the interpretation of the action already announced in September is an extension of our interpretation. So far, there has been talk of extending the moratorium, but not for everyone. The selective extension of the moratorium was also enshrined in the law in October: it will only be extended to the four priority populations and the narrow business circle (as we have warned many times in articles, not yet clarified in the legislation). (This company specification is probably one of the most mysterious ordinances of all time that has never been published.) Now it appears that the government would change this, the most credible people in distress would be exempted from payment, providing liquidity assistance to those affected. Interestingly, banks are more upset about the government’s uncertainty about stakeholders. They have been negotiating with the government for months and have made many IT improvements due to the significant data requirements for selective extension. With regard to the measure, it is also worth noting that it will further delay the actual deterioration of bank loan portfolios and hide the true size of insolvency problems by mid-2021. However, the European Banking Authority guideline ( EBA) of December 2 requires banks to begin provisioning loans that have been subject to a moratorium for more than 9 months, whether they are considered in default or not. It will be up to the MNB to decide to what extent this will apply to Hungarian banks, and the Hungarian supervisor is still examining the issue. For this reason, it is not known what effect this will have on bank profitability in 2021.

A second point in fact, it was already known, but otherwise it was a completely logical and justified move. Two weeks ago, the Minister of Finance, Mihály Varga, had already announced that the salary support measures would be extended due to the extension of the restrictive measures. The news now is that it is being extended to bus companies, which is a very important step for them, since all the orders from these companies have disappeared with the fall in tourism in recent months. (Note that the government has been relatively slow to meet players in the tourism and catering industry, as it previously added hotels to the list of beneficiaries.)

A Fourth point It is also about the government trying to make a previously announced measure more attractive (support for home renovation outlined in the Katalin Novák package). It was already known that from January 1, 2021 to December 31, 2022 we can use up to 3 million HUF in state aid for home renovation, 50% of the total investment will be reimbursed by the state in default, it is That is, if someone wants to use the full amount of the grant of 3 million, he plans to invest 6 million HUF. According to Viktor Orbán’s announcement on Saturday, it appears that the government will invent a state-subsidized loan to pre-finance up to 6 million. However, this can only save a few thousand guilders a month as 3-4% home loans are already available for renewal purposes, as we have written in detail. Also, obviously a bank loan appraisal is required for this, just like for the baby waiting room, so this does not widen the circle substantially, the borrower’s JTM indicator will only be slightly reduced by the rate subsidy interest.

The real nasty surprise

What can unexpectedly affect those affected, however, is a third point, the half business tax exemption is valid for a smaller scope than in the original MKIK proposal. László Parragh, president of the Hungarian Chamber of Commerce and Industry, launched the proposal to the government to completely eliminate the hippie in 2020 and 2021. In the last month, however, there have been more indications from the government that they are not supporting the proposal, which is putting local governments in an even more difficult position, on the basis of which city leaders have almost breathed a sigh of relief. It is worth examining the effects of the measure by companies, on the one hand, and local governments, on the other.

1. On the business side

Regarding the general abolition of the hip, which affects everyone, we have written before that it is not an effective step for crisis management. “This type of tax cannot differentiate between companies that have been positively and negatively affected by the current crisis. In this case, there would be a kind of lawn mower principle and all companies would be supported, not just those that really need help. “we wrote in November. .

Nor is it the new proposal on providing targeted support (i.e. letting go of half the ipa) that has really gotten into trouble, but rather narrowing the loop to smaller Hungarian companies. Previously, we noted that the biggest winners of the corporate tax exemption are large companies (the top 15 companies operating in Hungary would receive almost 10% of the hip exemption, which exceeds HUF 70 billion). For this reason, and because small and medium-sized companies also receive support that they do not even need, the measure is not yet effective.

In other words, since the business tax is paid mainly in proportion to income, the companies that have the least problems lose the least half of the IPA.

2. On the side of the settlements

In return, however, these revenues will not be in the coffers of local governments (annually, we are talking about huge industrial revenues of the local government that exceed 800 billion HUF in total). In light of this, it is particularly interesting that while the government does not even treat specific subsidies (see Kurzarbeit wage subsidy) too generously during the coronavirus crisis, it boldly lets go of local government hippies in general.

It is worth remembering the opinion of Ottó Sinkó, co-director general of Videoton, on the abolition of ipa. “It imposes an unfair and unjustifiably heavy burden on local governments living off corporate tax revenues, and does not determine on the basis of the need to know who is exempt from paying taxes, but would grant the benefit evenly to companies “he previously told Portfolio.

László Zara, president of the Association of Tax Advisors, said in relation to László Parragh’s original proposal that “if they do not act with due diligence and there is no adequate antidote to compensate for the loss of municipal revenue, it can have unpredictable consequences.

However, in the words of Viktor Orbán, they suggest that

A selective (but not needs-based) support system will be put in place in local governments, based on the population of the settlements.

However, it is also obvious that the more populated settlements are worse off with the abolition of half the business tax, as economic activity is more intense in the big cities. In your case, however, you don’t know at all what to expect after the government has reviewed your financial situation one by one. But there are also many questions about how settlements with fewer than 25,000 people receive compensation.

And the inclusion of the possibility of selectivity may even justify the fears expressed so far that support decisions are taken individually and in a non-transparent manner, which does not rule out the risk of political distribution. Especially before the 2022 parliamentary elections.

On Saturday afternoon, Mayor Gergely Karácsony also expressed his opinion on the step regarding the business tax:

And on top of all this, we must not forget that the municipalities have been subjected to a double pressure: the government has now deprived them of a lot of revenue with its current decision, but in the meantime it prohibited local governments from raising local taxes or imposing new ones. taxes.

As a result, some municipalities could find themselves in an extremely difficult position in 2021 if the government does not help them.

From now on, municipalities will be even more exposed to government decisions.

Cover image: In the image published by the Prime Minister’s Press Office, Prime Minister Vikor Orbán (b2) is negotiating with the leadership of the Association of Cities with County Rights (MJVSZ) at the Carmelite Monastery in Budapest on 19 December 2020 as part of a series of consultations to prepare new elements of the economic action plan. At the meeting, Károly Szita, President of the MJVSZ, Mayor of Kaposvár (j3), Co-President Attila Péterffy, Mayor of Pécs (j4), Ferenc Szalay, Executive Vice President, Mayor of Szolnok (j5), Lajos Kósa, Honorary President (j2) ,, the Prime Minister (get (b3)) and Antal Rogán, Minister (b) at the head of the Prime Minister’s Office The meeting focused on the economic effects of the coronavirus epidemic and the possibilities and means of crisis management.