Tips by GKI to boost growth

A series of clear and rapid economic measures have been recommended by GKI Gazdaságkutató Zrt which is composed of only a few elements, but can restore confidence in the business sector. Tax reform and a credible schedule for joining the Euro zone are parts of this program. According to András Vértes, president of GKI, the danger of economic growth remaining only 3 percent is great, with all neighbouring countries producing much faster growth. Experts from GKI have come up with the idea that next year’s budget expenditure should stay at its present nominal level. A multistage tax reform is also recommended, which would reduce the level of tax evasion. According to a GKI estimate, the introduction of Euro will become possible in 2012-1013, with Hungary joining the ERM-II. system in 2009. As a result of the absence of a clear and comprehensive concept and populist resistance by the parliamentary opposition and the majority of the population, the process of reform has broken down and produced only limited results. While positive change has taken place in the volume and structure of export, competitiveness has declined somewhat and unemployment has also risen. Three alternatives for tax reform have been worked out by GKI. Implementation should start next year. All three are intended to whiten the economy and to reduce the tax burden on legal incomes substantially at the same time. According to one of the alternatives, the rate of income tax for incomes not exceeding HUF 7.2 million would be reduced from 36 to 28 percent, and increased to 40 per cent over the 7.2 million threshold. Further steps also need to be taken in the whitening of the economy, for example the private use of company cars. A minority government could work technically, but it is unlikely to wok effectively. Positive developments have begun in 2008, with substantial improvement in the deficit of the budget, and in both internal and external balance, in consumption and investment. According to GKI, tranquility should be the key word in economic policy. Modest improvements in consumption and living standards are coming and an absence of radical change could have a positive effect on the popularity of the government. At the same time, the danger of tranquility is that the growth rate might get stuck at 3 per cent.