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UPDATE 1-Hungary to revive 5% VAT rate on housing to boost economy -PM

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BUDAPEST, Oct 7 (Reuters) - Hungary will reintroduce a lower value-added tax rate of 5% on housing projects until the end of 2022 to boost the construction sector and help recovery from the coronavirus pandemic, Prime Minister Viktor Orban said on Wednesday.

Hungary, whose standard 27% VAT rate is the highest in the European Union, applied a 5% rate on housing projects from 2016 until the end of last year.

The measure fuelled a housing boom in Budapest of a kind not seen since before the 2008 global financial crisis and helped boost Hungary’s economic growth rate to around 4% to 5%.

The economy shrank by an annual 13.6% in the second quarter due to Central Europe’s strictest coronavirus lockdown and could contract by 5% to 7% for full-year 2020.

The pandemic and a slower-than-expected economic recovery could represent the biggest threat to Orban’s decade-long rule as he prepares to face parliamentary elections in the first half of 2022.

“The VAT rate on home building projects will again be 5% until Dec. 31, 2022,” Orban told private broadcaster HirTV in an interview after his cabinet agreed the measure at a Wednesday meeting.

After its finance minister warned the economy could struggle to grow next year unless a coronavirus vaccine is found, Hungary will also extend a moratorium on loan repayments for some households and companies until the middle of 2021.

Orban also said his administration did not plan any further virus restrictions in the next three weeks despite a surge in infections since late August.

As of Wednesday, Hungary had reported 33,114 coronavirus cases with 877 deaths and 9,149 recoveries. Some 656 people are being treated in hospitals. (Reporting by Gergely Szakacs Editing by Chris Reese and Catherine Evans)