Developments in the Member States

Part II

Hungary

H
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Overall trends in taxation

Structure and development of tax revenues
As of 2010, with a total tax-to-GDP ratio of 37.7 % (including social security contributions), Hungary's tax burden
is the eleventh highest in the EU. This follows a 2.4 percentage point decrease since the previous year when
Hungary ranked ninth. It is noteworthy that the drop in the structurally adjusted tax to GDP ratio is somewhat
larger (from 41.7 % to 39.0 %), indicating that a structural tax reduction took place, partly mitigated by cyclical
effects (GDP contracted by 6.8 % in 2009 and grew by 1.3 % in 2010). Looking at neighbouring countries, Austria
displays a higher unadjusted tax ratio (42.0 %), Slovenia has a roughly equal one (38.0 %) while both Slovakias
and Romania's ratios (28.1 % and 27.2 % respectively) lie well below the Hungarian value.
Already substantial revenues from indirect taxes further increased to 45.5 % of total tax revenues in 2010, the
second highest figure in the EU. VAT revenues yielded 8.7 % of GDP which exceeds the EU average by 1.1
percentage point. Revenues from 'other taxes on products' are the highest in the EU (4.1 % compared to the EU
average of 1.3 %) mainly because of revenues from the local business tax, classified as an indirect tax. In contrast,
direct taxes are relatively low at 8.5% of GDP (EU-27 11.2 %). Social contributions in relation to GDP are above
the European average (12.0 % v. 10.9 %). The majority of them fall on employers; a reduction in this component
from 2009 to 2010 had the largest single revenue impact that year.
As to the structure of tax revenues by level of government, the central government remains by far the largest
recipient of tax revenue, with over 60 % of the total, while local government taxes represent 6.5 % of total
taxation. Local taxes grew rapidly until 2004 and since then they are showing a decreasing trend (55).
The overall tax burden declined gradually between 2000 and 2006 from 39.8 % to 37.3 %, then quickly reached
40.4 % in 2007 as a result of a public finance consolidation. Despite the sharp economic contraction the total taxto-GDP ratio dropped only 0.2 percentage points in 2009, partly due to the increased VAT revenues. The decrease
of total tax revenues in 2010 is largely due to cuts in employers' social contributions, personal income taxes and
corporate income taxes.
Taxation of consumption, labour and capital; environmental taxation
The high level of indirect taxation in Hungary leads to a correspondingly elevated ITR on consumption (27.2 % in
2010), the fourth highest in the EU. The ITR on consumption shows a general decline up to 2002 in line with the
reduction in indirect tax revenue, however it bounced back thereafter in line with the hike in the VAT rate.
The ITR on labour amounted to 39.4 % in 2009. This value is the fifth highest in the EU and it is well above the
EU average (33.4 %). Since 2000, the ITR on labour showed a gradual decline over time until 2004, but increased
to 42.3 % in 2008, then substantially decreased in 2009 and 2010. The contrast between relatively high ITR on
labour and average labour tax revenues in terms of GDP is a consequence of the low employment rate.
The revenues from taxes on capital are, at 4.7 % of GDP, one of the lowest in the EU, due notably to low business
income taxation. The ITR on capital remained stable between 2000 and 2006, it has increased significantly in the
following years, although remaining still well below the EU average, and then sharply dropped in 2010 to 17.5 %.
This is due to the removal of the solidarity surcharge on corporations, an increased threshold for the application of
the regular corporate income tax rate and to the deductibility of the sectoral surtaxes from the CIT base. The abrupt
rise in revenue from taxes on stocks of capital is largely due to the December 2010 introduction of the sectoral
surtaxes, retroactively covering 2010.
(55) The decreased share of local taxes in 2008 is purely due to statistical reclassification

Taxation trends in the European Union

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