With one wrong step, Hungary may miss the chance to catch up
Although the government’s program presented by the opposition a few weeks ago is very specific, it seems from the details and the political statements so far that it would shift the focus from the current investment-driven and job-creating economic policy to a model based on domestic consumption. Against the immediate pension, social spending and other wage increases affecting the public sector advocated that investment would see the greatest damage.
Of course, all this is not from the devil, as from time to time it can really effectively support the growth of its consumption spin,
but the examples so far show that, in the case of small, open market economies like Hungary, there is a huge risk of an economic policy based on domestic consumption, which, in addition to undermining the conditions for long-term growth, will ultimately lead to catching up and gradual indebtedness.
We saw this in the mid-2000s as well, first with the unsecured wage increases from the budget (the deficit was 9% at the peak of the world economy) and then with the spin on foreign currency lending, the Hungarian economy was trapped in debt, so the state did not have a segment that did not look facing the threat of indebtedness. Meanwhile, the supply side of the economy stagnated in one place, which is best shown by the labor market: in 2002, 3 million people worked in Hungary, 870 thousand, the general employment in this period was measured by the CSO in 2006, then the number was only 50 thousand.
Based on the speeches so far, it seems that the opposition has not substantially reformed the tax system, promising to leave the flat-rate system based on 15 percent family tax benefits, so the proposals show that it is inevitable that the minimum wage and the average wage earners will be exempt. they would become.
Gergely Czoboly, an expert at the Jalsovzsky Law Firm, told VG that this could be interpreted other than that the domestic tax system would turn to the previously applied progressive taxation, which would not take the form of a classic, multi-key form, but would in itself provide a progressivity.
However, Dániel Bajusz, an expert from the Ernst and Young Law Office of Vámos-Nagy, pointed out that one of the biggest problems with the previous system was that it supplemented the tax credit institution, which exempted wage-earners from working income to a certain level. legislature from paying taxes, but this has become an obstacle to wage growth, as with the expansion of this tax credit lost, the employee’s net also did not do well.
Presumably, this also played a role in the fact that wages in Hungary hardly increased before 2010, and between 1990 and 2010 real wages developed to only 20.
But it is also in favor of the current, purely flat-rate tax system to bring a lot of money to the protein of income, because it is much simpler to a complex system burdened with credits and special tax rates.
International examples also confirm that the population is more likely to pay a higher tax rate, and this is especially true for countries in Central and Eastern Europe with a basic lower payroll tax morale.
The case of Slovakia is a warning example for Hungary: our northern neighbor had the most competitive image of the region in the 2000s, not necessarily the three times 19 model (19 percent PIT, Tao, VAT), which has since softened, so there is now essentially there is progressive taxation. This also played a role in the fact that Hungary has produced higher growth in recent years, the Hungarian economy has grown by almost 17 years since 2010, even with the decline in the epidemic in 2020, at twice the rate of Slovakia. (You can read about the fact that the Hungarian economy is more competitive than the Slovak one here and here.)