Will Hungary Finally Join the Flat Tax Club?

Unlike most of its neighbors, Hungary is still saddled with a discriminatory tax regime, leading to high tax rates on productive behavior and a big underground economy. Fortunately, the collapse of the current Hungarian government may pave the way for a flat tax:

Small Hungarian opposition party the Hungarian Democratic Forum Thursday said it would attempt to force the introduction of a flat tax after a coalition split this week raised the prospect of a minority government. “The withdrawal of the (junior coalition) Alliance of Free Democrats has opened up the possibility of introducing a flat tax from 2009, since this gives the parliamentary majority for the decision,” the party said in a statement. Free Democrat leader Ibolya David called for opposition parties to attend talks on April 15 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‐​per‐​cent personal income tax to reduce a tax burden it called “unfairly high.” The Free Democrats and main opposition party Fidesz — along with its allies the Christian Democrats — have said in the past that they would favour a flat tax. …The Socialist Party 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 Organization 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 — hits Hungary’s regional competitiveness. …The tax burden also credited with maintaining the huge black economy. Estimates of the size of the black economy vary from the official figure of 18 per cent of gross domestic product to as high as 50 per cent among some analysts.