Reforms of Local Finance and Taxation in Hungary. Milestones and Junctions Since 1990

Kecső, Gábor (2020) Reforms of Local Finance and Taxation in Hungary. Milestones and Junctions Since 1990. POLGÁRI SZEMLE: GAZDASÁGI ÉS TÁRSADALMI FOLYÓIRAT, 16 (Spec.). pp. 332-344. ISSN 1786-6553

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Abstract

The current system of Hungarian local finance and taxation has evolved through consecutive changes since 1990. Among the many amendments to the underlying law, a couple of milestones and junctions should be pointed out. The signature of the European Charter of Local-Self Government in 1994 had symbolic importance. The comprehensive reform after 2010 was the biggest milestone without a doubt, because a new constitution and a new act on local governments were adopted by Parliament. Furthermore, it was also decisive that the central government bailed out local governments. Three different models of confining local borrowing have been applied so far. The market-reliance model was replaced by passive control in 1996. Active control came into force in 2012. A closed-list approach of local taxation was applied until 2015, when the open/-list model was introduced. Even though reforms have been put in place, local business tax still prevails in the Hungarian system of local taxation, as roughly 80 per cent of all local tax revenues come from this fiscal levy. Counties were assigned power to impose local taxes in 2020 as a result of the coronavirus legislation. Before this reform only local governments had been authorised by law to impose local taxes.

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