Evil rates

From retail’s point of view, the most important question last year was whether the decline in demand and turnover already hit rock bottom or it could still go lower? Another aspect of the same question concerns the budget: will the planned VAT revenues be collected and if yes, when? The changes that occurred because of the crisis and the plunge in retail sales make it doubtful whether the original objectives, set out at the end of 2008, can be met. VAT revenues of the budget finally amounted to HUF 2,135 billion, 1.6 percent more than planned. Data might seem a bit contradictory: how could a single increase in the VAT rate offset the effects of an 8-percent recession? It seems that despite increased prices demand did not continue to fall in the second half of the year. The government itself admitted to the contradiction, but waited for detailed data to see more clearly in this matter. The Central Statistical Office measured a 7-8 fall in demand in the July-November period, with food sales contracting by 5-6 percent and industrial goods by 10 percent. In the fist six months, inflation was speeding up, but with the cuts in the interest rate it slowed down. The question remains: how could revenues grow? There are two possible explanations: 1. changing the VAT of basic food products to 18 percent did not influence revenues, because their prices increased; 2. the 5-percent increase in VAT resulted in 20-percent higher revenues, as plans had been made with the original, 20-percent VAT. If statistics will support this theory, it means that the government reacted to the recession with a tax increase – so the upturn will be delayed.