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Constitutional Court annuls retroactive effect of severance pay tax

Hungary's Constitutional Court on Friday annulled the retroactive effect of a 98% tax on some severance pay for public sector workers.

The court annulled the tax itself in October, but it was reintroduced and approved by Parliament with retroactive effect from 2005 in November. Around the same time, a paragraph was written into the country's constitution that prohibits the Constitutional Court from taking decisions that affect taxes, the annual budget and pensions, unless they affect basic human rights. In the new constitution, which takes force next January, the Court is also prohibited from taking such decisions until Hungary's state debt falls to 50% of GDP.

In its decision on Friday, the court said its ruling was based on its competency to protect human dignity, arguing the retroactive effect of the tax was an affront to this.

Because of the wording of the legislation, the court's decision affects the retroactive effect of the tax for 2010 too, thus individuals who paid the tax may ask for refunds. The tax generated budget revenue of more than HUF 667 million by the beginning of April, according to tax office data.

The tax applies to severance pay over HUF 2 million for top state and local council officials and managers at state- and local council-owned companies, and to severance pay over HUF 3.5 million for other public sector employees.