Yet Austria, Germany, Denmark, Sweden, Finland and France have already abolished broad wealth taxes. Is Hungary reviving a policy that other European economies decided was too costly, complicated or ineffective?
Hungary's new government is preparing to introduce a wealth tax targeting individuals whose assets exceed one billion forints, approximately €2.6 million.
The proposal, announced on 6 October by Prime Minister Péter Magyar's Tisza government, is intended to increase public revenues and place a greater share of the tax burden on wealthy individuals.
According to the OECD, the number of member countries imposing broad individual net wealth taxes fell from twelve in 1990 to just four in 2017.
Several European countries abolished these taxes after concluding that they presented serious economic, administrative and enforcement challenges.
“But the initiative raises an important question: why is Hungary introducing a tax that much of Europe spent decades eliminating?.”
EuroAsia.News, reporting from Budapest
Europe Has Already Tried This Experiment
Austria abolished its wealth tax in 1994, followed by Denmark and Germany in 1997.
The Netherlands eliminated its traditional net wealth tax in 2001, replacing it with a different system of taxing investment returns.
Finland and Luxembourg discontinued their individual wealth taxes in 2006, Sweden followed in 2007, and France replaced its broad wealth tax with a narrower real-estate wealth tax in 2018.
Today, among EU members, Spain remains the principal example of a country operating a broad individual net wealth tax.
These decisions were not taken exclusively by governments sharing one political ideology.
They reflected concerns about administrative complexity, tax avoidance, capital mobility and the relatively limited revenue produced by some wealth taxes.
Why Did Countries Abolish Them?
The main difficulty is that wealth is not the same as income.
An entrepreneur may own a company valued at several million euros without having comparable amounts of cash available.
An annual tax calculated on the company's value could therefore create an obligation that must be paid even when profits are low or the business is experiencing financial difficulties.
Other challenges concern the valuation of privately owned companies, property portfolios and financial assets.
Wealthy taxpayers may also restructure their holdings or relocate to jurisdictions offering more favourable taxation.
An OECD study identified capital flight, tax avoidance, administrative costs and limited revenue as recurring reasons for abolishing these taxes.
However, economists continue to debate whether carefully designed wealth taxes can address inequality without producing excessive economic costs.
Hungary's Budget Problem
The government's proposal comes during a difficult fiscal period.
Hungary's projected 2026 budget deficit has reached approximately 7.5% of GDP, creating pressure to raise revenue and restore fiscal credibility.
A tax on large fortunes offers an apparently attractive solution: collect more from those with the greatest financial resources.
Supporters argue that wealthy individuals should contribute more to repairing public finances, particularly when ordinary households face rising costs.
But the eventual effectiveness will depend on the tax rate, exemptions, valuation methods and treatment of business assets.
These details will determine whether the burden falls mainly on liquid financial wealth or also affects entrepreneurs whose assets are tied up in operating companies.
Sweden and Germany Offer Lessons
Sweden abolished its wealth tax in 2007 amid concerns about capital leaving the country and the incentives created for wealthy residents and business owners.
Germany has not collected its wealth tax since 1997, following a Constitutional Court ruling requiring more consistent treatment of different asset classes.
France's experience is also instructive.
In 2018, President Emmanuel Macron replaced the broad wealth tax with one focused primarily on real estate, arguing that financial investments should receive more favourable treatment.
The French reform remains controversial because its distributional and investment effects are debated.
Nevertheless, the European pattern is clear: broad annual taxes on total individual wealth have become comparatively rare.
Could Hungary Lose Investors?
Hungary competes with other Central European economies for investment, business headquarters and skilled entrepreneurs.
A new wealth tax could influence decisions about ownership structures, investment and residence.
The extent of any effect remains uncertain.
A tax limited to very high fortunes, with appropriate exemptions for operating businesses, may produce different economic outcomes from a broad tax on all assets.
What matters is whether the additional revenue justifies the potential compliance costs and changes in investment behaviour.
Political Promises Versus Economic Reality
Magyar's government faces the difficult task of balancing campaign commitments, deficit reduction and economic competitiveness.
A wealth tax may demonstrate a commitment to redistributing the fiscal burden, but symbolism alone does not guarantee fiscal success.
Hungary could also consider alternatives, including reducing inefficient public spending, improving tax collection and broadening economic growth.
The essential question is whether the government has sufficiently studied why so many European countries abandoned similar measures. PM Magyar and his finance minister Andras Karman have been both in government with Viktor Orban for years. Both know the budget issues very well. A Wealth Tax is not decided suddenly. This was in planning for some time. That leaves the question why Magyar was attacking almost on a daily basis the government for tax reduction, while he now increases taxes even more than it was before. His proposed government of tax reduction seems was just an illusion for voters.
