BI analysis of the redistributive impact of Hungarian tax system making headlines

11/03/2022

In Hungary, the flat-rate income tax system includes no tax credit or zero rate that would reduce the tax burden of low-income households. The family tax credit does not play a significant role, as it tends to favour high income families with 3 or more children.

The study (in Hungarian), written by Judit Krekó, Hanna Erős, Bori Greskovics, Áron Hajnal, Adrienn Lawson and Ágota Scharle, used readily available Hungarian and international data, as well as anonymised data from individual tax records to examine the distribution of the tax burden.

There is practically no progressivity in the Hungarian income tax system: taxpayers without children are taxed at the same rate regardless of their income, so the state deducts the same proportion from the salaries of those earning very much and very little. Besides Hungary, only Bulgaria and Romania have such a system.

Family tax credits do not change this significantly, since only 23% of all Hungarian taxpayers claim these, and the net value of all allowances on tax and social security contribution related to children amounts only to 2% of total taxable income.

The BI study was reported in detail by Hungarian media outlets as Qubit, G7, Jelen, 444 (another article can be read here), Új Egyenlőség, Szeged TV, Telex, HVG and Tilos Rádió. Based on our results, two opinion pieces were also published, one in Magyar Narancs and the other in English on the Visegrad/Insight, and the programme Telepjáró dealed with the topic in depth.

The non-technical summary of the study is available in English here.