As the elections approach, taxation is becoming an increasingly frequent topic of discussion. There is a lot of misinformation circulating in the public discourse on this subject. One such false claim is that taxation in Hungary has increased since 2010. This misconception can easily be refuted by looking at the ratio of tax revenues to GDP. This indicator is the most suitable for comparing the level of taxation. According to this, the ratio of tax revenues to gross domestic product in Hungary has decreased by 1.7 percentage points compared to 2010, which represents the third highest tax reduction after Ireland and Malta. As a result of the tax cuts, Hungary has been able to make significant progress in terms of the competitiveness of its tax system. In this article, we present the Tax Foundation’s tax competitiveness ranking of OECD member states and changes in the level of taxation within the EU.
Hungary has seen the third largest reduction in taxation in the EU compared to 2010
The most objective measure of the level of taxation is the ratio of total government tax revenue to gross domestic product. This indicator can be used to determine the extent to which economic performance is affected by government revenue collection. To get an accurate picture, it is also necessary to examine the extent to which different types of taxpayers contribute to sharing the public burden. Last year, government revenues amounted to 35 per cent of GDP in Hungary, which is the seventh lowest figure. Of the 27 EU member states, Denmark has the highest level of taxation, with the state collecting nearly 46 per cent of economic output in the Western European country. In contrast, Ireland is at the positive end of the ranking, with 22 per cent.
The figure can be referenced here: https://public.flourish.studio/visualisation/26577480/
Compared to 2010, only seven of the 27 EU member states have seen a decrease in their tax rates. While the average ratio of government revenue to GDP has increased by 1.5 percentage points across the EU, it has decreased by 1.7 percentage points in Hungary. Ireland, the champion of tax reduction on our continent, is an exception among the countries ranked. Although the island nation reduced its progressive personal income tax rate during the 2022 energy crisis in order to stimulate economic performance and investment, the overall level of taxation did not decrease because of this, but rather because of the tax optimisation activities of foreign companies. Many international companies operating in the European Union are registered in Ireland, taking advantage of its low corporate income tax and extensive tax relief system. Company registrations inflate Ireland’s GDP without any actual economic performance, distorting the value of the indicator.
The figure can be referenced here: https://public.flourish.studio/visualisation/26577660/
In Hungary, the following major tax policy changes have been implemented since 2010:
- the progressive personal income tax was reduced to a uniform rate of 16 per cent from 2011 and then to 15 per cent from 2016
- the banded corporate income tax was reduced to a uniform rate of 9 per cent,
- the consumption tax was increased from 25 per cent to 27 per cent,
- to improve the demographic picture, widespread tax exemptions for mothers were introduced,
- tax exemptions were extended to people under the age of 25 in order to support young people.
The tax cuts, which were criticised by many when they were introduced, have proven to be sustainable. The reduction in income taxes opened up opportunities for increased consumer spending and savings. Their knock-on effects contributed to economic growth, thus offsetting the loss of revenue due to the tax cuts.
The figure can be referenced here: https://public.flourish.studio/visualisation/26577768/
In Central and Eastern Europe, trends in the level of taxation have varied over the past decade and a half. Compared to 2010, Slovenia is the only country besides Hungary where tax revenue relative to GDP has declined, but only by 0.1 percentage points. The figure above clearly shows that in 2010, Hungary had the highest level of taxation in the region after Austria and Germany. Today, the rate of taxation in Hungary is lower than in these countries, as well as in Poland and Slovakia.
Taxes on consumption are becoming increasingly important
The figure can be referenced here: https://datawrapper.dwcdn.net/Dm0pK/3/
The Tax Foundation, a US-based, non-partisan research institute examined the tax systems of the 38 OECD member states from a competitiveness perspective. Following their analysis, they compiled a ranking based not on the rates of different types of taxes, but on the structure, transparency, clarity and economic development impact of the overall tax system. They examined more than 40 variables for five main types of tax (corporate taxes, personal income taxes, consumption taxes, property taxes and cross-border transaction fees). The indicators examined included loss carry-forward rules (the forward and backward transfer of tax liabilities to avoid bankruptcy proceedings), depreciation rules, the complexity of the tax system, and tax credits based on patent or research and development expenditure.
This year, for the 12th consecutive year, Estonia topped the ranking, followed by Latvia, also in the Baltic region, then New Zealand, Switzerland and Lithuania. All of these countries have cross-border tax rules that encourage investment. At the bottom of the ranking is France, which has one of the highest levels of taxation relative to GDP, followed by Italy, Colombia, Poland and Spain.
Among the 38 OECD member states examined, Hungary ranks ninth, and sixth among the 27 European countries reviewed. According to the Tax Foundation, Hungary achieved this ranking due to its 9 per cent corporate income tax rate, which stimulates entrepreneurship and attracts foreign investment, and its flat 15 per cent personal income tax rate, which plays a role in cleaning up the economy. The low employer tax burden, which boosts labour market activity, is highlighted as a particularly positive factor. Our disadvantage compared to the countries ahead of us is due to taxes on consumption. Thanks to reforms within the tax system and extensive tax breaks for both companies and individuals, Hungary’s position has been improving for decades. While in 2016 we ranked 23rd among the then 35 member states, we have now managed to improve to the 9th place. International investors pay close attention to the studies and reports of the Tax Foundation, which is considered an authoritative organisation for comparing tax systems, so this favourable ranking is a significant gain in prestige for Hungary. Our sixth-place ranking in Europe highlights Hungary’s competitiveness in the region, but the report also points out areas that undermine our competitive advantage.
The average corporate income tax rate in OECD member states is 24.2 per cent in 2025. France has the highest rate at 36.1 per cent. Corporate income taxes reduce the after-tax rate of return on corporate investments. This increases the cost of capital, leading to lower investment levels and economic performance. In addition, corporate tax can result in lower wages and lower returns for investors as well as higher prices for consumers. Although the tax burden on corporate profits has a significant impact on the economy, it accounts for only 12 per cent of budget revenues on average in OECD member countries.
The figure can be referenced here: https://public.flourish.studio/visualisation/26578063/
One of the main dilemmas of economic policy is finding a level of taxation that provides adequate funding for public services while also giving private sector taxpayers room for further investment. A well-designed tax system is easy for taxpayers to comply with, promotes economic development and, at the same time, provides sufficient revenue for the government to implement its priorities. In contrast, poorly designed tax systems have high bureaucratic costs, inhibit economic growth and are unsustainable in the long term. Since the 2008-2009 crisis, there has been a trend in most member states of the Organisation for Economic Co-operation and Development (OECD) towards increasing taxes on consumption. In this context, tax rates on corporate profits as well as labour and capital income have been reduced over the past two decades in order to stimulate investment. In many cases, progressive taxation has also been simplified, thereby increasing the performance orientation of employees and reducing tax evasion. The importance of consumption taxes is demonstrated by the fact that in 22 of the 27 EU member states, the tax rate exceeds 20 per cent. In addition to Hungary, Germany, the United Kingdom and the United States are examples of countries that have made their tax systems more competitive. In contrast, in our region the competitiveness of the public burden sharing system has deteriorated significantly in Slovenia, falling from the 15th place in 2016 to the 25th place this year. In addition to the growing importance of consumption taxes, a process of harmonising tax systems has also begun. As part of this, the introduction of a global minimum tax that would undermine certain countries’ competitive advantage, including Hungary’s, was planned. In addition, in order to combat tax evasion, money laundering and the financing of illegal activities, the harmonisation of transparency rules and data reporting obligations is also planned, which is to be supported. In Hungary and throughout Central and Eastern Europe, consumption taxes are more significant than the OECD average.
In the Tax Foundation’s summary, progressive taxation is regarded as a disadvantage in the case of both personal income tax and corporate income tax. On the one hand, progressive taxation places a bureaucratic burden on both taxpayers and tax authorities. Another negative factor is that all five countries at the bottom of the ranking levy taxes on digital services as well as fees on inheritance and financial transactions. Four of the five worst-performing OECD member states (Spain, Poland, Colombia, Italy and France) also levy some form of wealth or capital tax.
