April 14, 2008 8:33AM

Flat Tax Progress in Hungary and Poland

By Daniel J. Mitchell

While most other East European nations have adopted pro‐​growth flat tax systems, Hungary and Poland are still burdened by class‐​warfare systems that penalize people for contributing more to economic performance. The Budapest Times, however, reports that Hungary’s small parties may combine to push through an 18 percent flat tax:

MDF leader Ibolya Dávid called for opposition parties to attend talks on 15 April to work out details of a bill to submit to parliament by May. The party wants to emulate regional peers such as Slovakia and Romania by introducing a flat 18% personal income tax to reduce a tax burden it called “unfairly high”. The Free Democrats (SZDSZ) and main opposition party Fidesz — along with its ally the Christian Democrats (KDNP) — have said in the past that they would favour a flat tax. …The MSZP has only 190 seats in the 386‐​seat parliament, meaning that the opposition parties could force through a flat tax bill by banding together. Hungary is ranked as having the second‐​highest tax burden for single people, behind Belgium, amongst the members of the Organisation for Economic Cooperation and Development (OECD). Many feel the high burden — made worse in 2006 when the government hiked taxes as part of its economic reforms — damages Hungary’s regional competitiveness.

Meanwhile, the Polish government already has promised to implement a flat tax, but a key official has suggested that the new system may be implemented in 2009 rather than in 2010 or 2011 as originally planned. Because of its size and geography, Poland’s shift to a flat tax would be a momentous development and could sharply increase the pressure for pro‐​growth reforms in Old Europe:

According to Zbigniew Chlebowski, head of ruling Civic Platform’s (PO) parliamentary club, there is a possibility of introducing a flat tax rate as early as 2009. Chelbowski said that Prime Minister Tusk supports this option and is ready to fight President Kaczynski should he veto it. Chelbowski, however, did not give a concrete rate of the possible flat tax, but stressed that it shall surely be lower than 18 percent, because such a rate would be higher than the present tax rates. The final decision is to be made in July or August. The ruling Civic Platform had originally planned to introduce the new tax in 2010 or 2011.