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Wednesday, November 08, 2006

First Impressions

Well since I need to be pretty up front in saying that at this point in time I have next to no specific idea about or feeling for the Hungarian economy, perhaps you will ask, and you would have every right to do this, what the hell am I doing here. This would be a good question.

All I can say is that I have some very general understanding of macroeconomic processes, and how things work, and that I am struck by the situation in Hungary, by how complex it is, by how many people's aspirations are tied with in the hope that all will be well as it ends well, and how difficult it is to foresee that sort of outcome.

Maybe at this point I should put on my CD of Bartok's quartets (actually at this point they have a piano concierto from Shostakovitch on the radio, I certainly hope that isn't a portend).

Anyway, here we go, and wish me luck.

Well the first port of call is undoubtedly the very useful Portfolio.hu, which is a mine of financial and economic opinion and information. Today, for example, I learn that the Hungarian government is now offering to ease up on that unpopular 'solidarity tax' which had been looming over international companies with investments in Hungary and the imminent introduction of which had lead Audi to place a complete freeze on all future investment in the country, something which today's measure is intended as a response to:

Hungary's government has decided on Wednesday that corporates will be allowed to write off their research and development expenses from the tax base of the “solidarity tax" that was implemented on 1 September, government spokeswoman Emese Danks told a press conference on Wednesday.

The decision to go soft on the new tax was triggered by Audi's recent decision to suspend investments in Hungary until it comes to terms on the solidarity tax and other tax-related issues with the cabinet.

The 4% solidarity tax is payable on top of a 16% corporate tax and its base is the pre-tax profit.

However, Audi, which spends about HUF 250 bn on investments in Hungary a year, is exempt from corporate tax until 2011.

Now the base of both the 16% corporate tax and the 4% solidarity tax will be a tax base that excludes R&D spending.

The cabinet had earlier said the solidarity tax would bring HUF 150 billion to state coffers, which figure has today been revised upward to HUF 170 billion. Taking last year's R&D spending into consideration (cc. HUF 100 bn), the allowance will cost the budget some HUF 5 billion next year.

Now this decision is certainly a stand-down for PM Gyurcsány who had been insisting on the full application of the tax, and it isn't clear to me, as a newcomer to all this, just what relations are like between Gyurcsány and his economics minister János Kóka, doubtless i will get hold of this as I advance. OK, that will do to get me started.

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