Tisza Party Promises VAT Cuts – cut will consumers see lower prices?

By: Trademagazin Date: 2025. 08. 29. 11:58

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The Tisza Party has announced that, if it wins next year’s elections, it would reduce the VAT rate on several product categories. According to the plan, VAT on healthy foods and firewood would be cut from 27% to 5%, while medicines – currently taxed at 5% – would become completely VAT-exempt, G7 points out.

Limited impact on prices

Although the proposal is likely to be popular with voters, past experience shows that VAT cuts have only a short-lived impact on prices. In the first few months, retailers often use the measure for marketing purposes, but over time the price difference typically disappears.

In the past decade, Fidesz governments also introduced reduced VAT rates on milk, eggs, poultry and pork, fish, internet subscriptions, and restaurant services. However, according to the State Audit Office, the effects on consumer prices were often negligible.

A budgetary risk

VAT is one of the most important sources of state revenue: in 2025, the government projects HUF 8,221 billion from VAT alone, compared to HUF 4,905 billion from personal income tax. During the recent inflationary period, VAT revenues rose sharply, helping to balance the state budget. Any significant cut in VAT rates therefore carries serious fiscal risks.

Retail sector response

Hungarian retailers have already faced extraordinary burdens in recent years: price caps, mandatory promotions, margin caps, and special sectoral taxes. Experts warn that another VAT cut could easily be “swallowed” by the retail sector, meaning consumers might not benefit from lower prices.

National Economy Minister Márton Nagy was blunt earlier this year: “I do not believe in VAT cuts – retail immediately swallows them. Supporting such a measure means boosting the profits of retail chains.”

Lessons from the housing market

The 5% VAT on new housing also failed to reduce prices. Instead, it mainly incentivized construction activity, according to the minister. Similarly, housing market analyst László Balogh (Ingatlan.com) argued in 2020 that the measure was primarily intended to restart the construction sector during the pandemic.