Why it is alarming if trade tax is eliminated in Hungary

The Hungarian Chamber of Commerce proposes to help COVID-19 struck businesses by taking away basically all sources of income from the local governments. Meanwhile, the government spends 545 million Euros on another stadium.

The Hungarian Chamber of Commerce and Industry (HCCI) has made a proposal to freeze all tax forms that fall under the jurisdiction of local governments, and eliminate the trade tax, Magyar Nemzet reports. This would apply to all small and medium-sized enterprises (SMEs), and it would be valid for 2020 retroactively and 2021.

President of HCCI László Parragh said:

“We also recommend that the government freeze the other types of taxes that fall within the jurisdiction of local governments. These include, but are not limited to, the property tax, tourist tax, construction tax, and communal tax. The aim of this is to make sure that local governments do not try to make up for the loss of the trade tax revenue by raising other types of taxes, thus guaranteeing that the burden on small and medium-sized enterprises (SMEs) will actually be reduced.”

They say that their goal is to help small and medium-sized enterprises which have suffered a lot due to COVID-19. However, it is commonly known that local governments make most of their profits off of these types of taxes.

Their proposal seems more about hurting local governments rather than helping the business sector. Without the tax revenue, local governments would need to rely entirely on the government for funding. In other words, the government would have the power to decide which local governments to support and which to deny money for possible developments.

Based on empirical evidence, in Hungary, this would mean that pro-government local governments would get all the funding they need and more. In contrast, opposition-lead local governments would get nothing. If local governments do not get money, they cannot make any developments in their local districts, which the government could then turn to their advantage and attack opposition-leaders for their lack of work, and convince voters to op for pro-government candidates in the next election.