Dan Mitchell Gets Results

I gave a speech in Hungary about two weeks ago and now the government has announced a big step in the direction of better fiscal policy. According to Reuters, "Hungary's new government plans to introduce a flat personal income tax of 16 percent from 2011, as well as a 15 percent cut in public sector wages." Those are the headline initiatives, but the fiscal reform package includes other good policies. Here's a blurb from the economist.

After a three-day emergency cabinet meeting over the weekend, Viktor Orban, the prime minister, announced the government's new economic programme this afternoon. The battered forint quickly jumped almost 2% in response. ...The introduction of a 16% flat personal income tax is a daring move, and could have important repercussions beyond balancing the state's books. Unemployment, or at least that element of it which is declared, is nudging 12%, and one reason is Hungary's cumbersome bureacracy and heavy tax burden. Now Mr Orban has announced that corporation tax for companies with annual profits of less than 500m forints will be reduced from 19% to 10%. Ten more small and bothersome taxes are set to be abolished altogether.

A few years ago, when several nations each year were adopting the flat tax, I arbitrarily decided that this rock classic would be the theme song of the tax reform movement. Any better suggestions?

Greetings from Hungary

A conference in Hungary was the most recent event on the Free Market Road Show. I tried to do something different at this event, focusing mostly on the Laffer Curve as I explained how European governments will fail if they try to fix the over-spending problem by raising taxes.

But regular readers of this blog have been exposed to plenty of Laffer Curve analysis, so allow me instead speculate on the meaning of the recent Hungarian elections, which resulted in a landslide victory for the supposedly right-wing party. With more than two-thirds of seats in Parliament, there is no obstacle to economic reform, and the party campaigned on smaller government and lower tax rates.

But here's the issues. Is the Fidesz Party a bunch of Bush clones, politicians who talk a good game but then make government bigger once they get in power? Or will the new Prime Minister (who also ruled from 1998-2002) be a principled advocate of freedom who uses his overwhelming mandate to implement a flat tax and reduce the horrific burden of government spending in his country (more than 50 percent of GDP)? I'm not overflowing with optimism, but I hope I'm wrong.