Economic whitening that has effectively suppressed the gray and black economies is a Hungarian success story that has been unfolding since 2010. Over the past ten years, not only have the economy’s performance and competitiveness improved as a result, but at the same time there has been a positive shift in the taxing morale of Hungarian society as well, reveals a Nézőpont Intézet study entitled “Towards a Snow White Economy” presented at a conference on the results of economic whitening in Hungary.
Using payment method statistics and opinion polls on gray economy experiences and habits, Nézőpont Intézet has mapped out the Hungarian gray economy for the third time in its study. The domestic gray economy has been gradually declining each year. In recent years, the number of employees has been steadily increasing (by 20 percent since 2010) and central government revenues have been rising with no increase in income tax. Personal income tax revenue amounted to HUF 1,504 billion in 2013 compared to HUF 2,177 billion in 2018. A well-known indicator of gray trade is the VAT gap, defined as the ratio of unpaid VAT to the total amount of VAT payable, which in Hungary decreased to a single digit, from 21 per cent to 9 per cent between 2013 and 2018. The payroll tax wedge also dropped, from 49 percent in 2013 to only 45 percent in 2018. The Nézőpont Intézet study has also looked at domestic bankcard usage patterns. 47 percent of Hungarians use their credit cards more often than five years ago, and 66 percent think it’s easier to pay electronically than before.
It has been pointed out at the conference that public morale has improved significantly in the last ten years. 21 percent more (59 percent) than in 2008 (38 percent) believe that if business owners follow the rules, they will have no issues with officials. The proportion of those who say it is not true that if everyone complied with the law, economic life in Hungary would come to a stop has increased from 31 percent to 45 percent. From 11 percent to 34 percent, the proportion of those who think it’s not true that one cannot become successful in business without the help of influential people. But more than twice as many (36 percent) as in 2008 (15 percent) reject the claim that anyone who wants to get ahead is forced to break certain rules.
Head of Nézőpont Intézet Ágoston Sámuel Mráz has talked about economic whitening facts, the trends seen in domestic and Central European polls and suggestions for further whitening. He has highlighted the success of the Hungarian cabinet’s measures to whiten the economy, as evidenced by the fact that the proportion of those who bought products from the non-taxing black economy has fallen from 42 to 21 percent over a period of ten years. In order to maintain the economic policy success story, however, the cashless trend would have to become stronger and cash stocks would have to decline in opposition to the current upward trend, he has added.
State Secretary for Tax Affairs Norbert Izer has outlined the successes of the Hungarian government in terms of tax cuts and economic whitening and the underlying principles behind the results. In his presentation, he has emphasised that economic whitening, which allows tax cuts, was a priority for the Hungarian cabinet. This means that the government encourages a gradual increase in the number of law-abiders at the bottom of the complience pyramid, while the number of those who are aware of taxes but cannot afford to pay, rule-breakers and fraudsters is steadily decreasing.
Proposals made at the conference were also shared at Tuesday’s session of the National Competitiveness Council. Following a meeting reflecting the position of the Hungarian economic policy credo, Finance Minister Mihály Varga has suggested extending the use of electronic payment instruments to curb the black economy, which was also formulated by state and market participants attending the conference.
Nézőpont Intézet has presented the current status of the gray economy in Hungary based on domestic and Central European opinion polls. In order to map the changes over the last ten years, however, they repeated a section of the survey in 2008 on the gray economy and compared the results with this year’s. Based on economic indicators such as the VAT tax gap, Hungary is already among the top European countries, while in terms of cash usage patterns it belongs in midfield among Central European countries. One third of Hungarians (35 percent) use a credit card, but six out of ten (60 percent) still prefer cash. In Czechia the rate is reversed with 59 percent using a credit card and 39 percent using cash, representing the best value in the survey.