Will Hungary Join the Flat Tax Club?

Tax-news.com is reporting that Hungary’s governing coalition is considering a flat tax. Tax competition is probably the only reason why this conversation is taking place. The current government, after all, has a dismal fiscal record of higher taxes and higher spending. But four of Hungary’s bordering nations already have flat tax systems, meaning that the competitive pressure for reform must be growing more intense as time passes:

The office of Hungarian Prime Minster Ferenc Gyurcsany has confirmed that the government intends to reduce the tax burden by 0.5% of gross domestic product over the next two years. … Gyurcsany told Euromoney that the convergence plan allowed some room for tax cuts and for the overall tax burden to be cut to 37.6% of GDP by 2010. … [T]he governing coalition has begun to debate a number of tax proposals with the aim of sharpening the country’s tax competitiveness. According to the business daily Vilaggazdasag, four tax packages were under discussion by the governing Socialist Party and its junior coalition partner Free Democrats last Friday: one would cut the ‘tax wedge’ on labour from 29% to about 20%, but increase the top rate of VAT by 2% to 24% and abolish tax allowances; the second would reform the personal income tax system, applying the principle of ‘super grossing’; the third would reduce the tax burden on corporations; and the fourth would introduce a flat tax on personal incomes and/or corporate incomes and VAT.