Local public finance and local taxes

Abstract

I wish to provide an overview of the role and weight of an increasingly important source of income of the nearly 3200 Hungarian local authorities, i.e. local taxes. Local public finance represents 12–13 per cent of GDP expenditures, and 23–25 per cent of public finance expenditures. Regarding income centralisation, the proportion of slightly over 2 per cent of local taxes compared to the GDP in Hungary is lower than in other countries. However, these taxes are predominantly paid by enterprises. Enterprises are obliged to pay corporate income tax and local business tax, the former after their profit, adjusted in accordance with the provisions of the Act on Accounting, the latter after their revenues, which, naturally, affects the competitiveness of enterprises. In OECD countries, applying the principle of equitable contribution to public revenues based on property, property-type taxes comprise 3–4 per cent of the GDP, while in Hungary, together with other property-type contributions to public revenues, they remain under 1 per cent.