Recently in Hungary my host told me that business was surging on the back of a 50% reduction in their VAT. It seems that is not the only thing good thing about tax in Hungary.
Since 2011, the Hungarian Government has instituted a radical programme of economic reform coupled with deep tax reductions. Hungary’s corporation tax now stands at just 9%, the lowest in the EU.
Income Tax has also been cut. Former staggered income tax rates of between 17% and 32% have been reduced to a single, simple flat tax of 15% for all. It will fall again to 14% in 2018.
If you attempted such as thing in the UK right now, you’d be labeled insane. Why? Because here we have a misguided consensus that serious tax reduction is not just politically unpalatable, but also ineffective.
But this is simply not the case – tax cuts are universally popular and they end up helping everyone. The Hungarian petri-dish gives us the proof.
When Prime Minster Viktor Orban first introduced his economic programme, it was panned in the media. Commentators euphemistically called it “unorthodox” when actually they just thought it was useless. But roll on a few years and Orban’s critics aren’t so vocal now, at least on the economy.
The Hungarian economy has seen a spectacular turnaround. The level of public debt has fallen below 75% of GDP and the country enjoyed growth of 2.1% in 2016. This is predicted to rise to 2.6% in 2017 – much higher than the EU average.