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Govt mulls letting local councils levy more taxes

The Hungarian government is mulling plans to change responsibilities and financing of local councils, according to information acquired by daily newspaper Népszabadság.

The combined deficit of local governemnts in 2010 has surprised officials at the National Economy Ministry. The combined deficit of HUF 247.7 billion was HUF 57.7 billion over the target established when the government set the 3.8%-of-GDP general government deficit target for 2010. The ministry has announced in response that operation of local councils would be rationalized, including limiting operating loans and moving their accounts to the Treasury.

The government is preparing further changes as well, including taking over the management of public schools from local councils, Népszabadság wrote. Three quarters of localities with such institutions would be relieved by such a transfer, while the rest would prefer to keep them. The political consultation is still ongoing.

Changing the role of councils would also lead to a change in their financing. The government would have a share of the revenues from local business tax, which are currently a significant source of income for local councils. Revenues from vehicle tax could also be diverted to the state. However, local councils would be allowed to design and levy new types of tax, giving them more room to maneuver. This could lead to an age of taxes such as “dog tax” and “hearth tax”, said the daily newspaper.

Still, no decisions have been made yet. A number of proposals are under consideration, and the final form of measures may take months to materialize.