Friday, June 11, 2010

The Flat Tax Percolates in Hungary

The selection of Viktor Orbán as prime minister, following his electoral victory with a two-thirds majority of his Fidesz Party in the final round of parliamentary elections on April 25, 2010, signals a new direction in Hungarian economic policy. After three days of meetings with his cabinet, Orbán presented a multi-point plan to parliament to address Hungary’s economic crisis, which consists of spending cuts and pro-growth tax reform.

As of this writing, the plan calls for a 16% flat rate tax on personal income, to replace the current two brackets of 17% and 32%. The rate was selected following an examination of flat-tax neighboring countries. (In mid-May, the prime minister’s office ordered a dozen copies of the German edition of “The Flat Tax.” Evidently the book reinforced Orbán’s predisposition for a flat tax.)

Enacting a flat tax on personal income would, according to the minister of national economy, enable the government to phase out 58 separate taxes, and underpin the government’s plan to reduce the burden of taxes on the economy. This blog will post details as they become available and the likely date of implementation.

On a related note, ground has been broken in Ireland for a discussion of a flat tax. Dr. Constantin Gurdgiev of Trinity College, speaking at the annual conference of the Institute of Certified Public Accountants in Maynooth on June 3, 2010, urged Ireland to adopt a 20% flat rate of income tax, replacing the current two brackets of 20% and 41%. Doing so would close the “welfare trap,” enhance Ireland’s competitiveness for foreign investment, and support its growing knowledge economy that requires highly-skilled people who are sensitive to tax rates.

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