It seems to me that Ferenc Gyurcsány is in his best form when he or his party or both are in the deepest trouble. In such cases he comes up with some excellent ideas. This time is no exception. It was only a couple of weeks ago that he announced the government’s plans concerning state-owned properties which he called "New Owners’ Program." The initial interest in purchasing shares in these companies is quite promising. Yesterday he gave another speech, this time at the Academy, in which he outlined the government’s plans for overhauling the system of taxes and benefits. It seems that as far as personal income in Hungary is concerned, the tax burden is not very high by European standards. Hungary is in the middle of the pack. If you live in Greece you pay very little but if you live in Denmark it is very, very high. By contrast, the tax burden of the companies, big and small alike, is enormous. The highest in Europe: 49%! In Denmark it is only 12.9%, in Ireland 13.5%, and in the United Kingdom 18%. For the time being no decision has been made about how to overhaul the tax system. Gyurcsány simply outlined three possibilities offered by economists and financial wizards. In the next couple of months he would like to conduct a public debate about the best way of introducing necessary changes in 2009.
One of the possibilities is to raise salaries but make the employees solely responsible for paying all the taxes and benefits the employers previously paid on their behalf. Other than its modest educational value (letting people know what their real salary is once benefits are added), I don’t see the upside to this option. A second possibility is to lower personal income taxes. The rate would be 20% for someone making less than 2.5 million forints per year; above this income level it would be 30%. To compensate for the loss of revenue from personal income taxes, real estate taxes would be made compulsory. The third possibility, obviously favored by Gyurcsány, would be to lower business taxes and benefits payments from the current 49% to 22%; at the same time the personal income tax could be raised on higher income levels.
Of course, the introduction of any of these three plans will result in some loss to the budget. The most expensive from the point of vew of the state would be the second option: lowering personal income taxes. The budget would be poorer by 420 billion forints which, according to the finance minister, the state cannot afford. According to tax experts the first plan, that is passing on the burden of taxes and benefits to the employees, is less expensive (a loss of 250 to 300 billion), which is more in line with János Veres’s thinking. But according to experts this plan will not increase the number of people employed and will be beneficial only to people in higher income brackets. They also claim that it would bring about inflationary pressures. The third option–lowering the tax burdens of companies–would be the least costly from the point of view of the budget (a loss of 200 to 240 billion), it would have a positive impact on employment, and it would help economic growth. The next few months will see heated debate on these issues. But at least this will be a debate on a more important question than a 300 ft. co-payment.