Taxation

2.6

The tax structure has changed somewhat in recent years: taxes on consumption increased (Hungary has the highest VAT rate), while taxes on business have slightly decreased.Brutal "special taxes" were imposed by the government in some sectors. The taxation of capital remains essentially unchanged, while a general financial transaction tax was introduced, rather than charging levies on speculative money flows. In terms of environmental impact taxes, the environmental product charges have increased strongly, but the revenuesare not used by the government to reduce the impact on the environment. The taxes on energy use have not changed substantially.

2.0

Taxing consumption

In a European comparison, taxes on consumption in Hungary are relatively high, while taxes on capital are relatively low. This trend even deteriorated further for both indicators between 2008 and 2011. The high tax burden on consumption is striking even in a regional context, and continues to grow. The top-tier VAT rate is the highest in Hungary (27%).

2.5

Taxing labour

Given that the implicit tax burden on labour (38.4% in 2011) is still higher than the EU average (35.8%) and the average of the Visegrad countries (35.4%), overtaxing labour has been mitigated in Hungary and thus the difference compared to international levels also decreased since 2008. However, the tax wedge on low –wage earners has strongly increased.

2.0

Taxing capital

In a European comparison, taxes on consumption are relatively high, while taxes on capital are relatively low in Hungary. This trend even deteriorated further for both indicators between 2008 and 2011. Let us add that low levels of taxing capital is also a widespread phenomenon in the Visegrad countries, whereas the high tax burden on consumption is striking even in a regional context. Based on the above, we judge the Hungarian performance to be weak, which merits a grade of 2.

3.0

Taxing financial transactions

Taxing financial transactions, based exclusively on international comparative data might even appear favourable, especially in comparison with the other Visegrad countries. The lack of predictability, the ad hoc punitive character of introducing the taxies and the negative indirect impact due to the manner of implementation (among others, stimulating effect on liquid cash flow and the hidden economy as well as a negative impact on the stability of the financial system) warrant a grade not better than 3 ("Mediocre") for the performance of Hungary.

3.0

Taxing pollution and resource use

In a European comparison the relative weight of environmental taxes in Hungary is an average figure. Nevertheless, the period 2010-2012 brought about a decrease of this tax burden, which is not a positive development. There was no clear trend between 2008 and 2012 regarding the implicit tax burden on energy. Unfortunately, the lack of predictability nevertheless only grew due to a number of peculiar political steps (sectoral and other special taxes, as well as cutting energy consumption fees) Income generated form traffic is also decreasing. The only tax revenue that showed substantial growth in recent years is the environmental product fee. The latter, however, functions as just another tax, as opposed to its original function, and thus it is not conducive to the recovery of waste, but only increases the state revenues.

2.5

Taxing energy

In a European comparison, the relative weight of environmental taxes in Hungary can be considered average. On the other hand, this sector of the tax burden was reduced, which is an unfavourable development. In terms of the implicit tax burden of energy, there was no clear trend between 2008 and 2012, and unpredictability has only grown since then given the context of the specific policy measures adopted (sectoral taxes and other extraordinary taxes, reduction of energy prices for consumers).