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A hump on the flat tax

September 22nd, 2011

The main left wing papers and even a right wing daily contend that the government’s plan to introduce a levy on average and above-average incomes to compensate lower wage earners, amounts to abandoning its flat tax policy.

Even as he outlined the main figures of next year’s budget, the Minister of the Economy announced that the transition to a flat income tax will be completed in 2012 by abolishing the tax free income section at the bottom of the income ladder. In a parallel move, higher income layers will benefit from the abolition of a system according to which they also pay tax on the social contributions their employers pay for them. As BudaPost reported on Wednesday, Magyar Nemzet urged the government to alter that scheme, and it now has. It is pressing for substantial wage increases, and anybody who still feels losing out may ask for compensation from the Income Tax Authority. Such sums will be covered from a new levy, to be paid by those who earn more than HUF 202 thousand per month. The prime minister’s spokesman denied that that provisional levy would amount to a new tax, but most newspapers don’t believe him.

The two national left wing dailies, Népszava and Népszabadság announce on their front pages that the flat tax has to all extents and purposes been abolished. “Nothing is eternal” – Népszava’s deputy editor János Dési comments. In an ironic remark on the official denials by government sources, Dési acknowledges that the sums higher wage earners will have to pay to the Income Tax Authority are defined as a contribution, rather than as income tax. “What a difference!” – he exclaims.

“The government has made a concession: multi-rate income tax is back, if only provisionally” – pro-government Magyar Hírlap declares in a front page lead. In an op-ed column, Professor András S. Szabó urges the government to admit that the flat tax system is a failure. “It would be wrong to stick to earlier ideas merely in order not to lose face,” he contends, adding that “one must have the courage to admit one’s mistakes.”