Budapest’s Municipal Tax System from the City Unification to World War II

Abstract

During the long period in question, the capital’s government was consistently underfunded in relation to its tasks. An important factor in this was that its tax system was largely an appendage of a state tax system that had never undergone comprehensive reform. Temporary solutions introduced due to fiscal constraints remained stuck in the system for decades. Following the reform of direct taxation (1875), the Wekerle tax reform of 1909 attempted to supplement the “tax system based purely on material grounds” with a “modern system of personal taxation”. However, intensifying political and economic conflicts prevented the implementation of the reform, which was already legally binding. Later, the pressure to increase revenue for changes at the state and capital city level was even more decisive than the creation of a logically structured system that logically divided the tasks and the revenue sources allocated to them. The anomalies this caused are clearly illustrated by the example of urban customs duties, which arose from the right to levy customs duties based on old urban privileges and were transferred to the modern urban economic system. The maintenance of a customs border between the capital and the conurbation, which was increasingly merging with it to form a single region, was already considered an anachronism at the turn of the century. However, its abolition was out of the question until 1950, as the capital’s budget could not do without the resulting revenue, which accounted for 6–9% of tax revenue between the two world wars. The political conditions for a change in the tax system that would have allowed this tax to be replaced and a more appropriate burden to be imposed were never created, so this always remained a serious obstacle to the realisation of the Greater Budapest area.