Hungary - Politics, government, and taxation

Since its transition to a multiparty system in 1989, Hungary has enjoyed a fully competitive and democratic political system. Hungary is a parliamentary democracy with the leader of the largest party as prime minister. There is also a president who acts as head of state and is elected by the legislature. The legislative branch consists of the single-chambered National Assembly, consisting of 386 representatives elected through a combination of proportional and direct representation. Elections are held every 4 years, taking place in 1990, 1994, and 1998.

The ruling coalition in 2001 consisted of the right-of-center Fidesz-Hungarian Civic Party, in concert with the Hungarian Democratic Party and the Independent Smallholders' Party. The main opposition parties were the leftist Hungarian Socialist Party and the centrist Alliance of Free Democrats. A far-right nationalist party, the Hungarian Justice and Life Party, also received 14 seats for the first time in the 1998 election. The parties differ over the emphasis and content of some key economic policy issues. The Fidesz-based coalition, for example, supports a faster pace of economic reform than does the Socialist Party, which during its period in government from 1994-98 slowed the pace of reforms. Because all major parties are committed to Hungary's joining the European Union, however, economic policy differences are muted.

Hungary's judicial branch is headed by an independent Constitutional Court, established during the regime change of 1989 by the First Act of the Constitution. By law it is the responsibility of the Constitutional Court to guarantee that the constitution is adhered to in legal and political affairs. One important duty of the Constitutional Court is to reconcile the differences between national and international law, especially important in the economic and policy sphere as Hungary prepares its laws to conform to EU standards.

The Hungarian justice system is divided into 3 areas of jurisdiction, including criminal, civil, and administrative law. Administrative law includes reviewing the legality of administrative decisions, including economic policy decision, with regard to existing regulations. Hungary has a 3-tier justice system. At the lowest level are local courts (municipal district courts), superseded by county courts (in the 19 counties and the capital Budapest), and the Supreme Court. The office of the public prosecutor also plays an important role, used to investigate criminal activity and to represent the public interest. The public prosecutor supervises investigations, enforces punishments, and oversees court proceedings.

Hungary has a large centralized tax office, known in Hungarian as APEH. APEH monitors the financial activity of citizens and businesses, processing annual returns and value-added taxes , currently between 12 and 25 percent in Hungary depending on the category of good. APEH has fairly sweeping powers to investigate tax non-compliance, including its own police branch. Income tax on individuals is progressive (meaning the proportion of tax paid increases as income increases), ranging from 25 percent to 42 percent for the highest incomes. The general tax rate on businesses is 18 percent.