Should the Poor Pay More?

The Hungarian tax system on individuals has an overall redistributive effect from the poor to the rich.

In academic circles, it is commonly accepted that the personal income tax system designed by Fidesz, Hungary’s ruling party, favours the rich and discriminates against the poor. This view is increasingly accepted by thought leaders of the democratic opposition, though it is far from a straightforward conclusion.

In the first two decades of the 2000s, using a single rate to tax personal income enjoyed great popularity in Hungary, even among those who otherwise opposed the ruling regime. Popular belief held that taxation directly proportional to income is not only fair but provide a much-needed incentive for greater economic performance. However, it is important to point out that personal income tax is just one of several types of taxes paid by individuals. Crucially, for instance, the amount of value-added tax or VAT levied on consumption is almost twice the amount collected by the state as personal income tax. As for its effect on the economy, there is no reliable evidence that flat taxation plays a major role in spurring economic growth.

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