The Hungarian government announced on November 17 that it plans to decrease the corporate tax rate to 9% from the start of next year.

The move is part of an overhaul of Hungary's tax and wages structure launched in recent weeks. The rejig is part of a wider set of policy moves designed to pep up a slowing economy and raise support for the ruling Fidesz party ahead of elections in 2018.

Hungary's corporate tax system currently has two rates, 19% for those with revenue above HUF500mn (€1.6mn) and 10% for smaller companies. The new single-digit rate will apply to both SMEs and large corporations, Prime Minister Viktor Orban said. It will be the lowest rate in the region (compared to 19% in the Czech Republic and Poland and 22% in Slovakia), and it is hoped will help Budapest attract foreign investment.

"With the tax reduction, Hungary would be able to offer the most favourable tax conditions in the European Union," Economy Minister Mihaly Varga said according to Portfolio.hu. The reduction will save businesses HUF145bn (€468.6mn), he claims.

Next year’s budget - which pencils in income of HUF734.7bn via corporate tax - will not have to be modified due to the tax reduction, as the government calculated HUF200bn of reserves when drafting the budget. 

During recent consultations with employers, the government proposed a 15% hike to the minimum wage as of next year. The corporate tax rate reduction seems to be aimed at reducing the burden on businesses stemming from that hike. A growing labour shortage and expanding wages are seen as a threat to investment and economic growth in the longer term.

The government has also proposed lowering the social contribution tax from 27% to 23% as of 2017, as the first step of a multi-year reduction programme. The measures are part of what it calls an economic stimulus package. Eyes are clearly also on the upcoming 2018 election, as impressive budget surplus figures give the government the potential space to put more money in voters’ pockets.