AMCHAM News

EXTRAORDINARY BUSINESS FORUM

Prime Minister intent on re-branding Hungary

Prime Minister Ferenc Gyurcsany was guest speaker at the Extraordinary Business Forum Dec. 7, organized jointly by AmCham and the Joint Venture Association. The interest of the business sector was best signaled by the fact that tickets had sold out days prior to the event. Gyurcsany, commenting on the current state of affairs in Hungarian economy, said the current cabinet and two previous governments are responsible for whatever went wrong.

“Business people tell me that lower taxes are decisive to Hungary’s competitiveness. I don’t necessarily agree with it in that form,” Gyurcsany said, adding that the inner structure of a country’s tax system is probably more important than the rate of particular taxes. The prime minister, however, agreed there is ample room for improvement when it comes to Hungary’s competitiveness. “There is no such thing as general competitiveness. Hungary cannot be competitive in everything. We need to define Hungary’s corporate vision,” Gyurcsany said. It is vital the government identifies those five sectors in which Hungary can be competitive and focuses on educational, development and infrastructure policies in accordance with these sectors, Gyurcsany said. “We need a lot of courage to come out and specify what our future will be about. We need your help in this endeavor,” he said.

“Furthermore, the Hungarian administrative system is expensive and has a very low level of efficiency,” he said. This sector has virtually undergone no significant structural changes in the past one and a half decades, as the Hungarian political elite has not been interested in having efficient state services, he added. “Today, there are only partial solutions to this problem, but reform of the public sector is unavoidable,” Gyurcsany said. Touching upon Hungary’s current monetary policies, the prime minister stressed that budget deficit and inflation are decreasing, but the country is still not in an optimal situation because of an excessively strong forint and high interest rates. “The strong forint is suffocating us, especially on dollar markets, but euro markets are also affected,” he said. The prime minister accused the central bank of pursuing a rigid interest rate policy, which makes development and the creation of new jobs virtually impossible.

SEMINAR AND COCKTAIL PARTY

Tax law changes in 2005

As a result of several modifications passed by the Hungarian Parliament in 2004, taxpayers will have a number of legal changes to familiarize with this year. The AmCham Seminar and Cocktail Party sponsored by Ernst&Young (E&Y) aimed at presenting the most significant amendments and speakers warned the audience about possible pitfalls in the legislation. The three speakers, Balázs Szölgyémy, Anna Szymanska and Róbert Heinczinger, all three from E&Y, talked about tax changes affecting different aspects of business life. In his general introduction, Heniczinger pointed out that amendments basically increased the overall tax burden but added: “Politicians did a nice job again in selling this package.” The concept underlying the tax law modifications was driven by current budgetary needs rather than a forward looking and consistent tax policy, according to the speaker.

The speakers from left to right: Balázs Szölgyémy, Anna Szymanska and Róbert Heniczinger

Szölgyémy’s presentation focused on changes affecting corporate income taxation and was divided into two categories: good news and bad news. Research and development (R&D) is one area that benefited from legal changes, according to the speaker, as 10% of R&D costs will be tax deductible, which effectively means that the government covers 42% of R&D expenses. “R&D seems to be the key word, but I’m not sure there is an economic rationale behind these changes,” he said. Also in the good news category is the gradual phaseout of dividend tax, which will be abolished from 2006. Moreover, there will be an additional deduction in the much-debated local business tax, as the amount recognized for corporate income tax purposes increased to 150% from 125%. Not surprisingly, the bad news category contained more elements including among other things a “silly change” in residency definition affecting group companies managed from Hungary (i.e. MOL or OTP), the tightening of film benefit rules, end to bad-debt deductions (with complete write-off permitted in very specific cases only), tighter rollover rules, and no progress in the area of local business tax. In her speech, Szymanska presented changes in payroll taxation and admitted “there has been an effort to simplify these taxes,” - most notably the personal income tax system. The bad news is the decrease in tax credit, which the law capped at HUF 100,000. Social security payments have not undergone significant changes, according to the speaker, who added that the introduction of an 11% health tax was probably the best news for the audience present at the seminar. The decrease in the itemized health care tax (lowered to HUF 2,250), however, will only take effect Nov. 1, 2005.

Changes in the area of indirect taxation were presented by Heinczinger, who pointed out that these taxes had already been greatly harmonized with EU legislation and the latest modifications were essentially “just fine tuning.” Taxpayers will still see some notable amendments in a number of issues, such as VAT grouping, the definition of economic activity, a 50% input VAT blocking on telephone costs (currently 30% and allegedly not in-line with EU regulations) as well as a simplification if call-off stock.

The presentations were followed by a cocktail party also sponsored by E&Y.

BUSINESS FORUM

The world’s most admired companies

The AmCham Business Forum sponsored by the Hay Group boasted a catchy topic and a speaker well acquainted with it: Jos Bomers, Regional Director for Hay Group in Central and Eastern Europe (CEE). Bomers shared his views on “What Makes the Most Admired Companies Great.” Hay Group, a global consulting company, has 9,000 clients worldwide and offers its advisory services in a wide range of areas, including organizational effectiveness, role clarity, managerial and executive assessment, selection and development, compensation, benefits and performance management, as well as executive remuneration and corporate governance. The group has partnered with Fortune Magazine since 1997 to identify the World’s Most Admired companies. As reputation drives real outcome for businesses, it is an important corporate asset and worth studying. In generating annual rankings, Hay Group surveys over 10,000 executives, directors and analysts. The Top 10 list of Global “All Stars” in 2004 is led by US retail giant Wal-Mart, followed by General Electric, Microsoft, Johnson & Johnson, Berkshire Hathaway, Dell, IBM, Toyota Motor, Procter&Gamble and FedEx. Bomers asked the rhetorical question of “Why should we study Most Admired companies?” and answered it with a list of well-argued reasons. These companies outperform industry peers and the market as a whole, according to the speaker, and achieve more than outstanding corporate reputation. The “Top 10” Global Most Admired Companies in 2004 delivered total shareholder returns of 5.8% over the last three years, compared to returns of – 5.6% for the S&P 500 over the same period. The most significant attributes that differentiate these companies from the rest are: ability to attract and retain talented people, culture, leadership, performance measurement, strategy implementation and managing through economic uncertainty. The overall difference, however, lies in execution not strategy. “These companies are just better in execution,” Bomers said. He added that it is not knowledge of best practices what determines competitive success but rather the ability to successfully implement and sustain these practices. “Making the ideal real” is what is needed, he said. The success of Most Admired companies in achieving high levels of clarity through the design of organizational structures, jobs and decision making processes provides important lessons for all organizations regarding the keys to putting best practices in place and increasing overall effectiveness.

THANKSGIVING DINNER

AmCham would like to thank the following sponsors of the AmCham Thanksgiving Dinner:

AmCham’s Traditional Thanksgiving Dinner was held Nov. 23 at the Budapest Marriott Hotel. Nearly 300 guests participated, and families with newborn babies, toddlers and teenagers had a chance to meet Santa Claus and enjoy excellent food. Heads of the charity organizations supported by this year’s Charity Drive were also present to personally thank the AmCham membership for their generous support. In line with the AmCham tradition, a live and a silent auction was organized for the benefit of the three selected children foundations.

AMCHAM INITIATIVE

Healthy Workplace Award 2004

AmCham launched the “Healthy Workplace Program” in November 2002. The program is in keeping with guidelines of the National Healthcare Program of the Ministry of Health. The two organizations signed a cooperation agreement April 20, 2004.

The mission of AmCham is to be the leading representative for US and international business in Hungary and to promote the global competitiveness of the country. It is the firm conviction of the Board of Governors of AmCham and the members of the Healthcare Committee that a prerequisite to this is maintaining the health and competitiveness of employees. The main objective of the program is to support AmCham members in meeting the requirements of a healthy workplace.

After the incorporation of suggested Program points, or upon certifying their continuing adherence, member companies can display the “Healthy Workplace Certificate” established by AmCham. We are happy to announce that so far over 60 companies have joined the Program. As part of the Program, the Healthy Workplace AmCham Award was announced for the second time in 2004. The Award was available for AmCham member companies in three categories: big corporations, mediumsized companies, and small businesses.

Applications were evaluated by an independent Advisory Board consisting of: Dr. Gábor Galgóczy, director of the National Institute of Occupational Health; Dr. Erika Greiner, department director at the National Institute of Food Hygiene and Nutrition; Judit Kerek, department director at the National Health Promotion and Development Center and Sarolta Monspart, deputy department head at the National Health Promotion and Development Center.

The winners in year 2004 are:

IN THE SMALL BUSINESSES CATEGORY:
KÜRT Computer Systemhouse Co

IN THE MEDIUM-SIZED COMPANIES CATEGORY:
ATEL Csepeli Vállalatcsoport and
Colgate-Palmolive Hungary

IN THE BIG CORPORATIONS CATEGORY:
Alcoa-Köfém Kft.

Competition among corporation applicants was so fierce that the Advisory Board decided to present additional certifications to GE Hungary Rt. Consumer and Industrial Division and to Visteon Hungary Rt.

The awards were presented at the Healthy Workplace Award Ceremony Nov. 16, 2004 by the Chairman of the Advisory Board, Dr. Gábor Galgóczy, the U.S. Ambassador to Hungary George H. Walker, the Chief Executive Officer of AmCham Péter Fáth and the Chairman of the Healthcare Committee of AmCham, Dr. László Polák.