Tax reform in Hungary

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.

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27 Responses to Tax reform in Hungary

  1. flyingduk

    Whilst I would personally welcome any increase in the % of my own income my rulers allow me to keep, the cost of the state has to be borne somehow. Absent any reduction in state expenditure, I know they will simply compensate for falls in tax revenue by increasing borrowings and money creation by inflation. They want and need all I earn and all I have, they can’t control themselves.

  2. Y

    Not to worry, our own 1% reduction in tax will phase in by 2037. Agility now!

  3. Confused Old Misfit

    Eminently sensible those Hungarians. Can you hear the protests though. But, but, they splutter, they do not have our health system or our welfare support system or our education system etc, on and on.
    All this with now two examples of the effect of lower taxes. One example in a small country, the other in the arguably second largest economy anad certainly the wealthiest on the planet.

  4. BorisG

    the other in the arguably second largest economy anad certainly the wealthiest on the planet.

    have they cut any spending?

  5. Leigh Lowe

    Is it possible they hate Socialism and Communism?
    I still think that the Soviet satellite states of the Cold War are the great hope for the salvation of Europe.
    They distrust authority intensely.

  6. BorisG

    They distrust authority intensely.

    Not so sure but they certainly don’t have a PC bug. For better or worse.

  7. BorisG

    PM Orban congratulates Erdigan on his victory, praises his leadership.

    He joins Russia and Iran in celebrating Erdogans victory. Good company.

  8. Fisky

    The best economic reform of all is shutting down immigration. Forces companies to innovate rather than just rely on ponzi population growth. Orban has done a fantastic job overall, and banning Leftism will be his greatest legacy.

  9. David Brewer

    Updated figures for Hungarian economic performance here.

    Certainly an impressive performance. 4 % growth in 2017 and again 4% predicted for 2018. This with a population that is contracting 0.3% a year, so per capita growth is 4.3% a year.

    And Hungary is not at all an exceptional case. Practically all the low-tax central and eastern European countries are enjoying 3-7% growth while the high-tax “core” EU countries – France, Italy, Belgium, and even the UK and Germany – are near or below 2%, see Table 1 here.

    The lesson could not be clearer, but politicians in the core countries, supported to a large extent by the EU bureaucracy, refuse to pay attention. Instead they are pinning their hopes on raking in even more taxes by jawboning financial institutions into breaking bank secrecy so they can hit investors with more bills and confiscate assets outright unless the owners “come clean”. You wouldn’t have to be Einstein to realise that this will give holders of capital even more reason to leave these countries for good.

  10. Mark A

    flyingduk
    #2747746, posted on June 26, 2018 at 10:22 pm

    Whilst I would personally welcome any increase in the % of my own income my rulers allow me to keep, the cost of the state has to be borne somehow. Absent any reduction in state expenditure, I know they will simply compensate for falls in tax revenue by increasing borrowings and money creation by inflation. They want and need all I earn and all I have, they can’t control themselves.

    If you speak of Hungary then you know little of the current situation.
    A parcel of Gov. bonds worth in excess of 2.5 Billion euros a (about 3.5 B AUD) is due or past due and paid off with reserve cash, they’ve put aside and no new bonds were issued to cover.

    The economy is booming, there are job ads galore at good wages.

    I do a lot of work there and while I’m not an expert on local politics, Co. policy to keep out of it, I don’t see a lot of discontent other then the old guard and the too well of uni students.

    I judge wealth by a crude method, what sort of cars are they driving? There are some very old cars but by and large the fleet is younger and more expensive than those of the Melbourne population.

    Admittedly, partly due of the luxury car tax in OZ, the Mercs and BMWs driven here are commonplace, nothing out of the ordinary about them.

  11. Fisky

    The reason why Eastern European countries are growing so quickly is due to investor and consumer confidence – in particular, confidence that the ruling elites do not hate the populace and want to replace them with Muslim/African “refugees”. This is allowing entrepreneurs to make long term investments based on the continued existence of nation states.

  12. BorisG

    The reason why Eastern European countries are growing so quickly is due to investor and consumer confidence

    And nothing to do with relatively low base and EU subsidies?

  13. Shy Ted

    It’s time to change the phrase “thick as a brick” to “thick as a Malcolm”.

  14. Egor

    Meanwhile in more important matters, the Liberts aren’t going to like this. No US open border crossings for Chinese product is teddible, teddible….
    https://theconservativetreehouse.com/2018/06/26/china-begins-to-question-their-economic-ability-to-withstand-u-s-trade-pressure-bamboo-forest-too-dense-for-local-panda-population/

  15. Far Kurnell

    We’ll have to go through the entire socialist through dictatorship and tyranny cycle to get to the point Hungary is at.

    Our lefty leaning youth crave and expect government control and intervention in their lives, unaware of the future of suchseeming benevolence.

  16. Gab

    There is not one politician in this country with the intelligence, let alone the courage, to attempt anything like that here. They are far too stupid.

  17. Gavin R Putland

    CUTTING INCOME TAX?

    Good! Income tax is a production/origin tax. Say’s law and all that.

    CUTTING VAT?

    Pure Keynesianism! VAT is a consumption/destination tax. Aggregate demand and all that.

    CUTTING COMPANY TAX?

    Well, if you cut your company tax rate to the lowest in the trade bloc, then obviously the multinationals will adjust their transfer prices to divert profits to your jurisdiction, and your revenue will rise and you’ll be able to pay off debt. I’m not averse to a bit of tax nationalism while it lasts. But let’s be clear that it’s a zero-sum game of which not every country can be a net beneficiary.

    If we were to cut our company tax rate to (say) 8% and get rid of all the exceptions, we too would benefit from diversion of profits. But the sorts of reductions that our politicians and lobbyists are now fighting over would make stuff-all difference.

  18. PM Orban congratulates Erdigan on his victory, praises his leadership.

    Who cares? What is important is what he does as a matter of policy and law in Hungary.

  19. Perth Trader

    Due to the Aust. federal and state govt. privatizing govt. industry and departments, any drop in company and business taxes would flow on to customers and cost of living to households. The same holds for tax increases. These flow on to customers. When the Aust. labor party talk about the ‘the big end of town’ getting a tax reduction these cost savings are past onto customers .

  20. Infidel Tiger

    Orban is showing the way for the right – pro family, pro country policies are a winner.

    He’s very pro Sheila too. Maternity leave, right to return to work etc.

  21. Leigh Lowe

    PM Orban congratulates Erdigan on his victory, praises his leadership.

    That is just diplomatic politeness.
    Wait until Erdogan waves through bunches of faux Syrians and points them towards Hungary.

  22. Myrddin Seren

    Wait until Erdogan waves through bunches of faux Syrians and points them towards Hungary.

    Unless Sultan Erdogan sends military engineers to precede the next refugee push, the tide will flow around Hungary.

  23. Nicholas (Unlicensed Joker) Gray

    Now that the Hungarian economy has had a spot of luck, it’s time to put all those taxes back! I say this only because I don’t want to learn Hungarian- if their economy keeps on doing well, they’ll become an economic powerhouse! Anyone spracken le Hungry?

  24. mh

    https://twitter.com/juliebishopmp/status/966997078390878210?lang=en

    Julie Bishop

    Verified account

    @JulieBishopMP
    Follow Follow @JulieBishopMP
    More
    Meeting Hungarian Prime Minister @Viktor_Orban – 74,000 Australians have Hungarian ancestry & we have much in common including commitment to open trade and investment

  25. Hydra

    Whilst I would personally welcome any increase in the % of my own income my rulers allow me to keep, the cost of the state has to be borne somehow. Absent any reduction in state expenditure, I know they will simply compensate for falls in tax revenue by increasing borrowings and money creation by inflation. They want and need all I earn and all I have, they can’t control themselves.

    Total income taxpayers in the economy has risen from 1.8 million (18% of the population) to 4.4 million (44% of the population).

    Tax receipts are booming and the government is cash rich.

  26. Dr Fred Lenin

    I have known quite a few Hungarians and Poles ,found them extremely patriotic with great love of their country and history. Not at all the kind of people the global communist fascists EU scum
    want ,that’s why they are trying to fill Europe with malleable illiterate muslim and African peasants so theycan indoctrinate them . The usual stupid left plan they never think “if we reduce the Christian European population ,who is going to pay to keep the invader hordes in welfare?”
    Typical left and typical career politics if it looks good it is good ,never mind the consequences.
    It’s like the gangrenes wanting to destroy industry,who will pay the public service wages they get when the tax take of their government plunges ? You can’t borrow money for ever without paying it back .

  27. Robbo

    Bring on a sensible flat income tax regime here.

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