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Sunday, December 4, 2011

Extraordinary taxes covering government mistakes

The law about the transitional rules of the coming into force of the new constitution contain - beyond the controversial pseudo-historic tirades about the guilt of the communist party (Hungarian Socialist Workers' Party) and that the Hungarian Socialist Party shares these guilts, contains a small hidden paragraph: If as consequence of a judgement of the European Court of Justice or the Constitutional Court a payment obligation is arising, a specific tax can be levied and the receipts of this tax can only be used to pay this obligation.
The latter phrase is intended to give a fair countenance to the new tax. Let's go a little beyond the plausible (and somewhat populist) argument, that this means that the government can have the people pay for its errors, and let us go a little deeper.
A tax is a contribution from a certain group of people or organisations to the common tasks (of the government or the municipalities). It is based on an income or a property of the taxable person (but can be a flat tax per person). It can reasonably be expected that the tax base is in correlation with the benefit which the taxable person draws from the service the tax is financing (of course this is very theoretical but local taxes are, for example, based on the revenue or property in a certain locality)
The new basic law actually replaced the term "proportional to property and income relations" by "according to the capability of bearing the load" in the part about taxation. This means that as long as someone is able to pay the tax, that person can be taxed even if another, better off person will not be taxed accordingly.
So who will be the subject of this tax? Those who brought the case in question to the court? Or those who can profit from the court judgement, thus neutralising the effect of the judgement? Dangerous questions.
It is even more difficult to find out what the tax base will be. If it will be a flat tax, it can hurt even the stipulation of capacity which replaced proportionality. And by the way, what will happen to the amount not needed to cover the payment obligation? Or will they just collect this amount: OK, we have to pay x forints (if euros, the exchang rate will also distort the picture), we want y people to pay for it, so everybody pays x/y?
One example: a judgement is already here: the deductible VAT cannot be retained till the invoice on which the tax is accruing, has been paid. This will meant about one to two hundred billion forints (about 350 to 700 million Euro) of payment for the state. This, however, is mostly just brought forward, when we assume that these invoices will be paid. But it is realistic to assume, given the dear state of state finances, that a levy may be raised for that. Who will be the subjects? All who reclaim VAT have to pay 2% of the amount reclaimed into the budget? I am afraid more bizarre ideas will originate in governmental heads.
More dangerous is the political effect: the government can always stigmatise those who go to court to avoid any, however unjustified measure: The people have to pay an extra tax because they went to court (if the measure is justified, it is reasonable to assume the court will approve it).

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