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Hungary to drop lower VAT rate on new homes

Budapest

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 per cent 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 per cent.

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

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

Hungary's main VAT rate is 27 per cent, 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," Mr Varga said. The minister said the reduced tax rate would remain in place until Dec 31, 2019.

Mr Varga said the government's main aim behind the reduced VAT rate had been to help families purchase new homes. REUTERS