Following our recent analysis of the current situation in Hungary, we publish a translation of a blog entry from Egyenlítõ TV, a left wing Hungarian Facebook page, on what the average Hungarian can expect in his pay packet starting this month. In spite of its author displaying some illusions in the IMF or some confusion about pensioners, it is an excellent piece clearly demonstrating that Hungary is following governments the world over in making the working class – and especially its poorest section – pay for the crisis of capitalism and for the mess their own economic mismanagement and corruption have caused.
February Surprise – how are net wages faring?
The shindig organised by Fidesz last Saturday was attended mostly by those who are not affected by the government’s cutbacks – primarily pensioners – or those who have not yet had to face the losses due to the reorganisation of the tax system.
The government unilaterally declared in 2010 that it was going to support the higher income groups by introducing its flat rate tax system; then when it had to face the resulting severe drop in tax revenues in 2011, making the forecasted deficit figures unattainable, it then brought in changes making the situation for low income groups even worse. Think of the abolition of tax allowances for example!
The table below graphically illustrates how the net income of a worker earning below the average wage and of another earning above it fared between 2001 and 2012*:
YEAR Net income ona gross Net income ona gross
of 125000Ft/month of 400000Ft/month
2001 74625 223764
2002 77375 225156
2003 85448 219919
2004 87708 214333
2005 92375 219000
2006 91756 215250
2007 90507 213500
2008 90715 213500
2009 90715 216500
2010 91863 231940
2011 89825 (-2.22%) ~result 248720
of flat rate income tax
2012 81875 (-8.85%) 252446
~result of cut backs
*Current exchange rate: 360Ft/£
It is clear that in 2011 – as a result of the flat rate tax – net pay in the lower income groups had gone down, while the higher income group’s had risen considerably. In February 2012, upon receipt of their first pay packet of the year, they will see the effect of the “no cutbacks.”
The net pay of the lower income group will fall below the level of 2003, and even the higher income group will not get any considerable increase.That small increase will be more than offset by the high petrol prices due to the sorry state of the forint or higher retail prices in the shops due to the VAT increase.
The average net pay in 2011 was 139800Ft (£388) per month. At this level the tax changes have no positive effect, quite the contrary.
Thanks to the flat rate tax, the net monthly income of the lower income group dropped by 2.22% in 2011, and again with the new changes, by 8.85% in 2012.The government expects wages in small and medium size enterprises to rise as a compensation for this drop. This would mean bankruptcy for large numbers of firms, which would result in even more unemployed.
The government’s revenue from income tax dropped by 400 billion forints in 2011It was this that they tried to compensate by the abolition of tax allowances, the VAT increase from 25% to 27%, a rise in national insurance contributions, all measures that affect those on low income most.
Looking at figures suggesting a stagnation of consumption, we can see clearly that in spite of a rise in income by middle and higher paid layers, they were not spending more. There are two possible causes of this: they are cautiously saving, rather than spending due to the uncertain internal and external economic situation; as well as a saturated market, where spending has topped out in recent years, i.e. they will not buy two loaves of bread instead of one, just because their net salary had gone up by 10000Ft (£30) a month. On the other hand, the lower income groups cannot increase their spending due to a drop in their net income, and are accumulating an ever increasing level of debt.
After this let any government spokesman state, that nobody is worse off due to the new flat rate income tax. In February the majority of the population will feel the effects of the economic policy of Fidesz: decreased net pay and increasing prices in the shops.
In society in general a considerable recessional effect can be seen, because:
- Those on either average or below average net incomes will suffer a severe drop in income;
- Although those in the middle income bracket have already had an increase in net income, the increases in other taxes (higher VAT, higher national insurance, an element of uncertainty, rising bank interest rates) will more than cancel that out.
- Only those in the highest income bracket have had a considerable increase in net income;
- The income gap between all groups is getting bigger, the poor got poorer in the last 18 months, and the rich got even richer, which will increase tensions in society in the coming period.
After all this we wouldn’t mind too much if the IMF would request the abolition of the flat rate income tax.