The flat tax is not so flat anymore

The story of Fidesz and the flat tax goes back quite a while. First we were told that the party was not thinking in terms of a flat tax because it is "not just." That was February 2010, when in a television interview Viktor Orbán claimed that a flat tax is not just "because it doesn't take into consideration the number of dependents."

Five months later, in June, the new prime minister changed his mind. Yes, the government will introduce a flat tax. The new system will be so simple that one could write it on the back of an envelope. Corporate and business taxes will be so low that foreign capital will pour into the country. It was also promised that every taxpayer will be better off after January 1 when the new tax code is introduced. First, it turned out that about 75% of the taxpayers lost on the deal and second, not enough tax revenue is being received by the treasury. The original budget is in tatters and the economy is in terrible shape.

In March economists predicted that the net income of 1.5 million people will be adversely affected by the new tax code. Once this was discovered, the government tried to pass the odium of its policies on to the employers by forcing them to make up the difference by raising salaries. One of the Fidesz luminaries got the job of heading a "salary commando" that would make sure that employers obliged. If they didn't, they wouldn't receive any government contracts. The employers who by and large had been ardent Fidesz supporters began to have doubts about their favorite party. They were really miffed that their opinions were ignored and, to top it off, they were being threatened. Moreover, the government refused to negotiate with either the employers or the trade union leaders about anything, be it suggested wage increases or the labor code.

By August it became evident that the Hungarian economy was doing very badly and that the budget deficit was becoming larger and larger by the day. Yet both György Matolcsy and Viktor Orbán insisted that no change would be made to the tax code. A flat tax or nothing. In fact, we heard time and again that the previous tax code which had two tax brackets (16% and 35%) was the cause of the economic crisis. This nonsense is frequently repeated even today.

Then at the end of August I heard István Pálfy (KDNP), a former journalist, tell György Bolgár that "there had been unofficial discussions about a temporary higher tax bracket for the better off strata of society." Pálfy must have been scolded because by the next day he explained that what he said was not what he meant. A day later Viktor Orbán himself announced that he wouldn't support "any kind of solidarity tax because that may mean that the rich people would move their money abroad."

Yet within a couple of weeks one late afternoon an announcement appeared on the website of the Ministry of National Economy (Nemzetgazdasági Minisztérium) to the effect that there will be "a temporary contribution" that must be paid by anyone who earns over 203,000 ft ( €788.00 or $935.00) a month. So, in a year and a half, Orbán changed his mind three times. First, he announced that there would be no flat tax, then five months later he insisted that there would be, and then, eight months after its introduction, he returned to his original position.

This shift had to be communicated in such a way that the Hungarian people wouldn't realize that the famous flat tax that was supposed to save Hungary from ruin and set her on the road to plenty had failed. How could the spin doctors cover up the fact that Viktor Orbán and his right-hand man, György Matolcsy, had been wrong? This was the job of the government spokesman.

We found out only a couple of weeks ago that Orbán was dissatisfied with his communication people. He has his own personal spokesman, Péter Szijjártó, and I don't think that anyone could do a better job at twisting the truth than he does. Orbán should be perfectly satisfied with him. He knows exactly what to say. He obviously has a very good memory: what his boss tells him is fixed in his mind. And he is quite capable of repeating the same sentences over and over again, fluently and with great conviction. 

However, Orbán wanted to have a spokesman for the government which he cunningly placed under the Ministry of Administration and Justice headed by Deputy Prime Minister Tibor Navracsics. According to people in the know, Orbán's idea was that the bad news which was bound to come wouldn't emanate from the Prime Minister's Office but from somewhere else. They appointed a pleasant fairly young woman, Anna Nagy, to the post; about a year later she took a leave of absence for family reasons. However, we were told that after six months she would return to her old job. In the meantime Zoltán Kovács, undersecretary in charge of communication, would take over her job. In the end, it seems that Orbán was satisfied with neither person. Moreover, he came to the conclusion that after all communication should be under his watchful eye. Anna Nagy didn't get her job back and Zoltán Kovács is not continuing her work. The former apparently wasn't quite familiar with the details of the government policy while Kovács, who came from Debrecen, wasn't at home in national politics. Thus an entirely new department was set up directly under Viktor Orbán.

A new government spokesman was found. Previously he had paraded as an independent political analyst who worked for the Századvég Intézet, which pretty well gave away his close connection to Fidesz. I used to see András Giró-Szász on András Bánó's weekly program, A tét, where he was normally the spokesman for Fidesz. Personally, I found him to be an unpleasant fellow. Every time his fellow political scientists said something he didn't agree with he had a sarcastic smile on his face that communicated to the audience his total contempt for other people's ideas and opinions. There were times when even his facts were faulty. So, I didn't know how he would fare as an official spokesman for the government.

Well, it seems that Orbán wasn't terribly happy with Giró-Szász's first performance, which was supposed to sell the idea of a second tax bracket without giving away the fact that it is really a second tax bracket. According to rumors, the prime minister told Giró-Szász and crew off. The new government spokesman denies that it ever happened, but people who know how Orbán reacts when something is not to his liking can't quite believe Giró-Szász.

But fear not. Szijjártó came to the rescue. He explained today that it is not a new tax. It is simply a different kind of calculation applied to people whose salary is over 203,000 forints. Earlier the government had calculated everyone's 16% tax on the basis of his "super gross" salary. That meant that the tax was figured on the basis of gross salary multiplied by 1.27. Then the government abolished the "super gross" calculation across the board. Now by claiming that they are merely reintroducing the "super gross" calculation, albeit only for those who earn above a certain threshold, they can say that they are not creating a new tax bracket. I doubt that even Szijjértó's clever explanation can work this time.  

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You know why they use 1.27 factor. Which is the Gross Salary and Social Security Premium.
The reason why they need to abolish it, is that it would be considered double taxation.
In other words people pay tax over the premium and as well as over the grant/allowance they would receive under the Social Security Program.
Under EU law and various Avoidance of Double Tax Treaties this is not allowed. Therefore, they change it to the certain threshold.
But I am afraid that damage is done by Szijjártó, because the 1.27 ratio stands and you can fight this in the courts as being a Double Taxation.

is orban ridiculously corrupt??
is orban ridiculously corrupt??

Flat tax is not just. The Warren Buffets and Orbans should pay more tax than their secretaries.
The small Hungary is spending too much on the civil service. A radical downsizing will be unavoidable.
The details should not be left to the Jobbik. They stir trouble on all fronts.


Once more, evidence that Fidesz came into government with no plan and have been improvising, badly, ever since. The photos of OV’s speech text are emblematic of this. The Emperor is in his altogether.


Quite typical. A narcissist thinks that he has brilliant ideas, he is always right, and if things don’t work out, nothing is his fault. So problems will be blamed on somebody else. Always. Acknowledging the slightest oversight or mistake is way too threatening for a narcissistic ego. So if people doesn’t like any of his decisions, OV blames his communication team.
Also, for a narcissist, looks are everything… it doesn’t matter what a thing actually is, but it has to look good. Hence communication is of utmost importance. And hence the ridiculous and many times self-contradicting distortion of facts and reality so as things can look in their best possible light in that given moment. But you can only do this for so long…
“A tenyek makacs dolgok” “Facts are quite stubborn”. (from the 1969 Hungarian movie, A Tanu/ The Witness).


“Fidesz came into government with no plan”
It’s certainly starting to look that way. But it’s hard to believe – after all the effort they put into getting there, surely they would have put a bit of thought into what they would do afterwards?
It reminds me of the Iraq invasion, but we all knew that GWB was an idiot. I honestly thought more of OV. As I said the other day – how can he be so good at some things and yet so bad at others?


“Quite typical. A narcissist thinks that he has brilliant ideas, he is always right, and if things don’t work out, nothing is his fault. So problems will be blamed on somebody else. Always. Acknowledging the slightest oversight or mistake is way too threatening for a narcissistic ego.”
An accurate insight, An.


One more contribution to the Kertesz saga:
Who can be honest in Hungary?

Jeff Fouts

Great and interesting content!