VI - Euro Plus Pact

On March 11, 2011 the Heads of State or Government of the Eurozone endorsed the Pact for the Euro. At the 24/25 March 2011 European Council, the same Heads of State or Government agreed on the Euro Plus Pact and were joined – hence the ‘Plus’ – by six others: Bulgaria, Denmark, Latvia, Lithuania, Poland, Romania (leaving only the UK, Czech Republic, Sweden and Hungary out).    
The objective of the pact is to foster competitiveness, foster employment, contribute to the sustainability of public finances and reinforce financial stability. In the Euro-Plus-Pact the Heads of State or Government have entered into commitments on a number of policy areas, in which member states are competent.          

What political/legal difficulties did Hungary encounter in the negotiation of the Euro-Plus-Pact, in particular in relation to the implications of the Pact for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process.

Hungary is not a member state joining the Euro-Plus-Pact.[1] According to the Prime Minister, the Government decided not to join because the pact can reduce the right of member states to decide about their own tax systems. According to him ‘Hungary’s tax benefit system greatly relies on the corporate tax base – certain allowances, such as research and development-, culture- or sport-related ones, are deductable from the tax base. Changing it would require the modification of the whole allowance system, which would result in the elimination of certain tax benefits.’[2]

Prime Minister Viktor Orbán said on the topic in the Parliament on 4 April 2011: ‘I recommend it to the plenum to never support a European tax harmonization, because we, the Hungarians can only lose with it: mostly lose workplaces. I ask for your support for the Government on this issue.’[3] He also said, that joining the pact would mean 1% of decline in economic growth for Hungary and the loss of 50 000 to 70 000 workplaces in the country.

According to Péter Oszko, former Minister of Finance, the real reason for Hungary not joining the pact was that it would integrate the system of different corporate tax systems, not by equalizing the rate of the tax but by adopting the same system to calculate the amount of the tax. In this model it would be obvious however that the Hungarian corporate tax rate is relatively low; other taxes in the system (like local business tax or the so-called ‘crisis taxes’ imposed on big international companies after the beginning of the economic crisis) make it expensive to run a business in the country. As a consequence the reason of not joining to the pact was to avoid transparency.[4]

What other information is relevant with regard to Hungary and the Euro-Plus-Pact?

No, Hungary is not a member to the Euro-Plus-Pact.

[1]See also: Zsofia Danko: Corporate tax harmonization in the European Union, MPRA Paper No. 40350, posted 6. August 2012 14:29 UTC, page 215.