Hungary to remove new jobs condition for investment subsidies

BUDAPEST (Reuters) - Hungary’s government will offer cash subsidies from October for private sector investments that use innovative technology, dropping a requirement that jobs must be created, the foreign minister said on Tuesday.

FILE PHOTO: Hungarian Foreign Minister Peter Szijjarto arrives to address the 74th session of the United Nations General Assembly at U.N. headquarters in New York City, New York, U.S., September 26, 2019. REUTERS/Eduardo Munoz/File Photo

With a scarcity of workers limiting its old economic model of attracting foreign investment with cheap labor, Hungary is looking to transform itself into a capital-intensive economy to sustain high levels of growth.

Economic growth slowed to 4.9% in the second quarter from 5.3% in Q1 and the central bank expects a further slowdown next year as the euro zone, Hungary’s main trading partner, slows.

“If companies in Hungary introduce new technology, bring in new machinery, introduce new processes to maintain or upgrade competitiveness without creating new jobs they are eligible for the same cash incentive up to 50% of the volume of the new investment,” Foreign Minister Peter Szijjarto told a conference.

Hungary’s unemployment rate has fallen close to 3% and a chronic labor shortage across most sectors has already forced big foreign businesses to invest heavily in automation.

Szijjarto said that with no more than 5 million available workers, Hungary, which is strongly opposed to immigration as a cure for labor shortages, had to transform its incentive system for investments.

“The focus is not on creating a robust number of new jobs,” Szijjarto said. “The focus is on enhancing the level of technology, added value and the (research and development) share of already existing jobs.

“Whatever you spend on R&D, twice as much will be deducted from your corporate tax base,” he added.

Szijjarto said that in the first half of 2019, South Korean companies such as Samsung SDI and SK Innovation, which are building battery factories to supply electric cars, had for the first time invested more in Hungary than German companies.

The government contributed 131 million euros in the form of corporate tax allowances and cash to Hungarian energy company MOL's MOLB.BU polyol plant, which will be operational by mid-2021 and running at full capacity by 2023.

The plant, built by Germany's ThyssenKrupp TKAG.DE, will make MOL the only integrated producer of polyether polyols in Central and Eastern Europe.

Reporting by Gergely Szakacs and Krisztina Than, Editing by Catherine Evans