Portfolio blogger

Wednesday, August 17, 2011

What some recent numbers tell about Hungarian education

According to a publication on Hunagrian education (2009 data), in Hungary, 84 percent of the 20-24 years old population has completed at least upper-secondary education (grammar school or vocational secondary school) compared to 78.6% in the 27 EU member states.
Early leavers (population aged 18-24 years with at most lower secondary education – equivalent to the classes 5-8 of the 8-years primary school - and not in further education and training) are 11.2% compared to the EU-27 average of 14.4%.
In the population between 25 and 64 years, Hungary has a high proportion of upper-secondary (grammar school or vocational secondary school) and post-secondary graduates (61 versus the Eu average of 47 %). The proportion of both lower and higher education is lower than in the EU overall.
Source: Spotlight on VET, Hungary, European Centre for the Development of Vocational training http://bookshop.europa.eu/en/spotlight-on-vet-pbTI3111147/downloads/TI-31-11-147-EN-C/TI3111147ENC_002.pdf?FileName=TI3111147ENC_002.pdf&SKU=TI3111147ENC_PDF&CatalogueNumber=TI-31-11-147-EN-C

Some recent results of the PISA tests also show an interesting picture. Just one graph from the EC press release:

Percentages of low-achieving 15 year-old students in reading (2009)
Source: OECD, PISA 2009 database

Hungary has slightly higher proportion of low achievers than the EU target but lower than the EU average and scores better than its neighbours.

These figures raise interesting questions concerning the educational concept and changes in the school system:
Did the reforms yield a result in spite of scepticism? Hungarian students scored significantly better in the last two PISA tests than before. In the first one, two years age, the area investigated was one where Hungarians usually scored better (technical and scientific) but the latest one (late 2010) did show a significant improvement in areas where we did not score well before.
Is it justified to decrease the number of students in higher education? Are we really over-qualified?
Will the decrease of compulsory education age limits improve the rate of early school leavers (which is not high even with the present limit) or ont he contrary, yield more pupils who leave school without finishing their education to a level where they can find their place on the labour market?

Monday, August 8, 2011

Court of Justice detects flaw in Hungarian VAT system

The European Court of Justice decided in its judgment in Case C-274/10 that the Republic of Hungary has failed to fulfil its obligations under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax - by requiring taxable persons whose tax declaration for a given tax period records an ‘excess’ within the meaning of Article 183 of to carry forward that excess or a part of it to the following tax year where the taxable person has not paid the supplier the full amount for the purchase in question, and
– because, as a result of that requirement, certain taxable persons whose tax declarations regularly record such an ‘excess’ may be required more than once to carry forward the excess to the following tax year,
More precisely, Hungary has exceeded the limits of the freedom available to the Member States under Article 183 which allows the Member States to lay down conditions for the refund of a deductible VAT excess.

What is this about? One way of VAT fraud is when the seller does not pay the VAT which is claimed by and refunded to the buyer. In these cases sometimes the buyer does not pay the seller. The first Orbán government decided that one way to counter this is not to enable actual payment of the VAT reclaimed if the buyer did not pay the seller. The amount can be deducted from VAT payable, the excess being carried over to the next period (which can be the next month, the next quarter or the next year, depending on the amount of VAT payable by the company over the previous year – exceptions to shorten the period are difficult to get), Thus, companies having one big purchase (usually investing) can in some cases have to wait a year or more till the get the VAT back.
This of course addressed only a marginal aspect of the problem as in VAT fraud it is often the seller which then vanishes with the money. This regulation put actually investors and leasing companies (who invest in goods and thus have immediately a claim to reimbursable VAT to lease them out where their income comes over time) and also their lessees (who only pay in installments and were thus not able to get even the VAT of the first large installment repaid) in a difficult position. After a discussion between the Ministry of Finance and the Leasing Association the problem was partially solved (in this case reimbursement can be made if the amount of the VAT is paid which leaves only lessees who pay a first installment below 20/% out in the cold).
The complaint of sellers, which could also be the basis of the rule, namely that if they do not receive the payment, it is difficult to pay the VAT (and thus this rule could improve payment discipline) could actually have been solved based on Article 66(b) of the Directive which allows that a Member States makes VAT chargeable, in respect of certain transactions or certain categories of taxable person no later than the time the payment is received. However, the Republic of Hungary has not claimed to have made use of that possibility (point 50 of the judgment).
The Court of Justice found that this rule infringes the fiscal neutrality of the VAT system: "such conditions must enable the taxable person, in appropriate circumstances, to recover the entirety of the credit arising from that excess VAT. This implies that the refund is made within a reasonable period of time by a payment in liquid funds or equivalent means, and that, in any event, the method of refund adopted must not entail any financial risk for the taxable person" (point 45 of the judgment).

It must be noted that no deadline has been set for changing this rule. It is also clear that the main problem highlighted by the Court was that there was no assurance that the tax will be recovered and when it can be recovered (the taxable person may have to carry forward the excess several periods giving rise to an uncertainty and a long delay).
Point 55 of the judgment states: "In that regard, it must be borne in mind that the carrying forward of a VAT excess over several tax periods following that in which the excess in question arose is not necessarily irreconcilable with the first paragraph of Article 183 of Directive 2006/112 (see, to that effect Enel Maritsa Iztok 3, paragraph 49). However, given that the national legislation at issue provides for tax periods from one month to a year in length, it may create a situation in which certain taxable persons, do not, because of the repeated carry-over of an excess, obtain a refund of that excess within a reasonable period."

So the consequence is not - as it is hinted by several articles in the news - that the amount of VAT has to be repaid immediately to everybody who has an outstanding claim, but the time to refund has to be limited to a reasonable and foreseeable extent and the conditions have to be in accordance with the VAT directive.

Of course, from this moment on, VAT subjects can request the refund of their excess VAT in their first VAT return. The judgment of the Court gives them the assurance that they are acting correctly. Although in general, European directives are not directly applicable, the member states have to transpose them into their national legislation and the national legislation is applicable, the judgment of the Court of 19 January 1982 in the case 8/81, (Ursula Becker v Finanzamt Münster-Innenstadt) enables direct applicability of the directives if the provisions of a directive "appear, as far as their subject matter is concerned, to be unconditional and sufficiently precise, those provisions may, in the absence of implementing measures adopted within the prescribed period, be relied upon as against any national provision which is incompatible with the directive …". And this can be done by all those who still have recoverable VAT which has not been paid to them based on the provision of the Hungarian VAT law which was annulled by the Court. If they do not request it, however, then they have to wait till the Hungarian Parliament modifies the tax law - ideally the modification should contain transitional provisions on the cases in progress.

Tuesday, August 2, 2011

Voting patterns in the European Parliament - Hungarians among the illoyals

Do members of the European Parliament (MEPs) vote according to their national interests or their party affiliation? My experience which draws on reading a number of committee amendment proposals to legislation, suggests that professional convictions also play a significant role. On the other hand, decision-making is largely consensual, so the differences in opinion are not necessarily visible in the votes.

The voting behaviour in the EP was subject to two analyses recently:
The Robert Schuman Foundation of France published a two-part report (http://www.robert-schuman.eu/question_europe.php?num=qe-189 and http://www.robert-schuman.eu/ question_europe.php?num=qe-190 while VoteWatch, an independent monitoring organisation, which collects and publishes interesting statistics on its website and also regularly reports on voting behaviour investigated in the first semester of 2011 the dynamics of voting behaviour in the three largest groups in the European Parliament. Their results were also reported in European Voice, a weekly on European affairs. The full report on power in the EP covers the period between 2009 and 2011. I draw the conclusions below from these two reports.

On the website of VoteWatch, also the loyalty of individual members is investigated and it can be seen that their loyalty is above 90% both with their party group and their national majority. This supports the idea outlined above that voting is largely consensual. One more factor has to be kept in mind: there are a number of votes which are not roll-call, so the voting behaviour in them cannot be analysed. This was the case when the motion about the new Hungarian Constitution was voted upon. The evaluation of the politics of the Hungarian government is one of the most controversial issues under discussion (you could even say that the FIDESZ party could polarise the European Parliament to an unprecedented level as they did so already with Hungarians). The vote was won with more than 50% of those present, 331 votes. Although this is mathematically possible without any EPP (to which FIDESZ belongs) vote, the proportions indicate at least that the EPP, the ECR (another centre-right, somewhat more eurosceptic grouping), the eurosceptics and the far right could have blocked the resolution.

Roll call votes can be initiated by the party groups and are usually enhancing
voting discipline but - in case of a difficult decision, can also lead to MEPs not voting, writes the Schuman foundation. Thus, there is no regularity in which question is put to a roll call vote and which one is not. Roll call votes are about one third of the total voting procedures. Since 2009, however, all legislative proposals must be approved by roll call voting (according to the internal regulations of the European Parliament.

Based on 16 votes in the first year of the legislative 2009-2014, the Schuman
foundation concludes in general that the right-left divide plays a smaller role in the European Parliament than on national level, as it coexist with the national affiliations, its role is increasing. There is also another divide: those who favour and those who oppose the enhancement of European integration. This line of course also extends between parties but is still not the same.
There is another trend: increase of the power of the Parliament through the Lisbon treaty has - in the opinion of the foundation - led to an increase of the role of national interests in voting.

The mixture of national and party (ideological) affiliations can lead to strange phenomena: European Voice concludes, for example, that French, Italian and Hungarian delegations in the centre-right EPP are more aligned with the S&D (social-democrat) group than other national delegations. "Among the seven largest national party delegations in the EPP, the Hungarian FIDESZ has voted with the majority least often (95%)." states the VoteWatch report. The biggest deviation was in the area of agriculture, where FIDESZ voted only 69% of the time with the rest of the group. On the other hand: "In the EPP, the highest degree of similarity in voting behaviour between leaders of the largest national party delegations has been between heads of the Polish and the Hungarian delegations." writes the report. European Voice also mentions environment and public health as points of dissent. The Hungarian delegation in other political groups is small and thus their behaviour is not analysed.

As there is no political group with absolute majority, coalitions have to be formed. These are nicely described in European Voice. The consequence I want to mention here is that the liberals seem to tilt the balance in many cases and they were the ones who were on winning side of votes the most frequently.

European Voice also draws conclusions on the dominance of some national delegations in the main political groups. The EPP and the S&D are dominated by the Germans. They form the right wing of the group, together with the Spanish Partido Popular. In the S&D group, the British - being to the right in the group - vote less with the group (this, however, still means 90% loyalty). The influence of the German FDP in the liberal ALDE group was limited due to the fact that the party is the furthest to the right of the group and prefers voting with the EPP. The most rebellious delegation, however, is the French MoDem, to the left of the group in a political sense.

If we add that most decisions are taken together with the Council, where consensus-building is also the rule but qualified majority voting is gaining ground, and that only the Commission has the right to propose legislative acts, a complex mechanism of decisionmaking is unfolding. No wonder it is so badly understood and can be the scapegoat for decisions the national politicians do not want to present to their constituencies.