July 4, 2018 / 7:02 AM / 5 months ago

Hungary to scrap reduced VAT on new homes after 2019 as planned -minister

BUDAPEST, July 4 (Reuters) - Hungary will drop a reduced value-added tax rate on new homes at the end of 2019 as planned, Finance Minister Mihaly Varga told broadcaster InfoRadio late on Tuesday, addressing speculation that the government could extend the measure.

The 5 percent VAT rate, in effect since 2016, has fuelled a housing boom in Budapest not seen since before the 2008 global financial crisis and helped boost Hungary’s economic growth rate to around 4 percent.

The upswing in house prices and mortgage lending has opened a new chapter for Hungary’s banks after years of deleveraging.

“The government is not considering an extension,” Varga told InfoRadio in an interview late on Tuesday.

Hungary’s main VAT rate is 27 percent, the highest in the European Union, although the government has lowered the tax on basic foods and some services.

“A bubble has emerged in the market and it is no use for the government to feed this further with artificial tools,” Varga said.

The minister said the reduced tax rate would remain in place until Dec 31, 2019.

Varga said the government’s main aim behind the reduced VAT rate had been to help families purchase new homes, but foreign buyers and domestic investors were increasingly taking advantage of the upswing, which, he said, was not what the government had in mind.

The tax measure is part of Prime Minister Viktor Orban’s drive to boost Hungary’s low birth rates and support large families. Orban was re-elected for a third four-year term in an April landslide.

The National Bank of Hungary has said economic growth could slow in 2020 as a hike in the VAT could halt an upturn in the housing market. (Reporting by Gergely Szakacs Editing by Raissa Kasolowsky)

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