Mária Lakatos

Taxation in General: Hungarian Tax System

Third stage: changes in the taxation system between 1998–2002

The economic policy accompanying the governmental change was in favour of growth instead of monetary and fiscal restriction and creating balance, and it had a definite concept of which groups it intended to strengthen from the horizontal and equity aspects and it wanted to create the socially useful family model through indirect interest in taxation.

Family support reached its peak in 2002, while HUF 71 bn was available for tax credit, and the government supported families with children with a tax revenue dropout of HUF 76 bn. We cannot talk either about large-scale change or reform despite the simplified tax scale and re-positioned allowances within the population groups. However, from 1998, the social insurance contribution paid by employers was reduced radically, by 10 %. The rate of deduction went down from the former 39 % to 29 % claiming that no new jobs were created due to the high contribution. The 10 % reduction was counterbalanced by the increasing health contribution only partially, raising the effective rate of health insurance contribution by 1.06–1.91 % on average [22].

The minimum wage went up from HUF 25,000 to HUF 40,000, which was mainly disadvantageous for entrepreneurs. Interestingly enough, the increase was not accompanied with higher unemployment, which is a connection accepted in the professional literature, moreover, the unemployment rate reduced under the conditions of the general boom [23]. Increasing the minimum wage also meant a higher contribution base, finally the amount received from social insurance contributions did not reduce because growth remained the joint impact of lower employer deduction and the parallel minimum wage increase. Therefore, the Orbán government basically reshuffled the allowances and tax benefits, which did not change on the whole, the emphasis was laid on large, middle class families with children and with earning capacity rather than supporting those who were most in need in social terms. (What is more, family allowances and family support could only be received for children who had a school attendance certificate.) However, the government strongly reduced the contributions but did not touch the benefits that were financed from contributions.

During the four years, the personal income tax revenues significantly increased, by HUF 155.7 bn, i.e. 24 % on average, the amounts from social insurance contributions also went up, though slightly, but no major change was recorded either in VAT or in corporate tax revenues. At the same time, there were much more private entrepreneurs who did not only declare but also paid taxes and this growth can partly be explained by the impact of high tax exemptions as well.

The number of taxpayer employees also showed an increasing trend - another partial impact was the number of those who found work due to the reducing unemployment rate and the minimum wage increase in 2001, which was not followed by tax credit growth, therefore tax also had to be paid on income in the lowest class. The effective personal income tax rate was the highest in this period, at the same time the growth of revenues was much higher than in the former years, which implies a change in the taxpayer behaviour, they voluntarily stepped back to the legal taxpayer circle.

Changes at a similar rate but with a different sign took place over the next four years although the tax burden was lowered in all the three tax types, but in different years.

Taxation in General: Hungarian Tax System

Tartalomjegyzék

Kiadó: Akadémiai Kiadó

Online megjelenés éve: 2022

ISBN: 978 963 664 137 5

Taxation is a scheme for the state to provide revenue. The so collected money could then cover the public spending of the government. These are the so-called allocative and redistributive functions of the state budget. Although, taxation theory discusses the various tax types and analyses the various taxation tools very extensively, there is no absolute answer to the question, when and what type of taxation system would be optimal. Thus this introductory book on taxation deals with the three basic types of taxes - the income tax, the VAT and the corporation tax - in a very pragmatic way. There are legal texts and cases from both the international and also from the relevant Hungarian practice.

This book is recommended not only for students of economics but also for law students and practitioners beside anyone who is interested in the basic regulations of taxation.

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