The latest issue of Public Finance Quarterly puts public finances in focus. Five studies discuss the topic and review the transition to accrual accounting, the public services’ integrity risks and controls, the creditworthiness of local government-owned companies, the tax system’s reform, and the impact of reducing the corporate income tax rate. Besides a further article analyses the financial literacy of the small and medium-sized enterprises and we can read about the structural reforms in financial crisis management in Ireland.
József Simon and the co-authors in their study present the most important areas of change in public account and the experiences concerning transition to accrual accounting in the public sector from the perspective of supreme audit institutions. The experiences are presented through the Austrian and Bulgarian examples. Besides the article gives an overview of the main changes in the Hungarian public accounting system, also from the point of view of the supreme audit institution.
2017 marks the seventh year that the State Audit Office of Hungary conducted an Integrity Survey evaluating the corruption risks of public sector institutions and the availability of integrity controls ensuring protection against corruption. The study of Erzsébet Németh and the co-authors examine the integrity situation of public services based on the Survey’s data. According to the results of the research, the provision of chargeable services, the possibility of exercising equity and the excess demand for the services carry significant integrity risks. Integrity is supported by the fact that in the case of cash benefit, an official handover document is usually drawn up and the majority of the institutions appropriately regulate the issue of conflict of interest. However, only one third of the institutions has established a system for supporting complaints and whistleblowing. In addition, particularly in case of organisations where demand permanently exceeds supply, the inappropriate regulation of the acceptance of gifts, invitations and travels draws the attention to a major deficiency within public sector integrity.
The study of Zoltán Zéman and the co-authors analyse the creditworthiness of local government-owned companies by means of a modelled scoring system, a scorecard-based credit scoring method adapted to local government-owned companies. The analysis that uses an objective factor-based scoring system covers all the areas of operation of the companies, encompassing their management. The scoring system is used to classify the examined companies into appropriate categories based on their key financial indicators. The analysis covers the period between 2013 and 2016. The study gives an overview of the credit rating of local government-owned companies, which will be examined on a territorial dimension, as well, for the purpose of levelling. Based on the results of the research, the creditworthiness of local government-owned companies changed in a hectic manner in the examined period, but the majority of the public companies examined belong to the creditworthy category.
The study of Bianka Parragh and Dániel Palotai provides an overview of the stages and results of the transformation of the tax system in Hungary as well as the tax administration to date. The tax reform implemented in Hungary after 2010 was a milestone, as it not only changed the tax structure in a growth-friendly manner, but also served to simplify the tax system and reduce tax evasion. The reform of the tax administration was launched in a second round in 2016, with the aim of establishing a cooperative, client-oriented tax authority which encourages taxpayers to adhere to the rules through modern means and appropriate incentives.
Corporate income tax is the greatest burden on undertakings, so the rate of this tax and how its base is defined are competitiveness factors of Member States. Ábel Czékus’s study analyses the trends of State aid and corporate income taxation in Member States of the European Union after 2000. The research started out from the hypothesis that the decreasing trend of corporate income tax rates will result in a decrease in State aids. Correlation analysis was used to answer the questions whether it is possible to detect a parallel movement between tax burdens and State aid amounts, and what factors influenced this movement. In departure from the general understanding, the results indicate that while nominal corporate income tax rates and GDP-proportionate State aids both decreased continuously, the actual tax burden increased in some cases, and on the other hand, the high redistribution rate of Nordic Member States appeared also in State aids.
The study of Ágnes Győri and Ágnes Czakó examines the financial management culture of the small and medium-sized enterprises (SME) based on the results of a nationwide representative survey. The analysis focuses on the financial literacy and behaviour of entrepreneurs: the knowledge and use of different financial products, the planning of financial management, the late settlement of invoices and the substantiation of financial management decisions. The database is based on the survey entitled “Financial Literacy in Hungary”, conducted by Corvinus University of Budapest in 2017. By applying a multinomial logistic regression, the authors showed that the domestic SME sector can be segmented according to financial literacy indicators. Three groups can be distinguished: (1) traditional thrifty enterprises, (2) enterprises lacking resources and (3) smartly-financed enterprises.
László Török’s study describes Ireland’s pre-crisis economic conditions, the impact of the crisis on the Irish economy. It analyzes in detail the changes triggered by the crisis in the national budget, debt and taxation. After that, the study gives insights into the economic cornerstones and instruments of the Irish contingency measures before presenting an overview of the results of the structural reforms. The study concludes that Ireland’s resolute efforts to restore the budget and to increase the flexibility of the economic structure played a key role in the success of crisis management and in conjunction. It is pointed out that today Ireland is in a position where the economy is well prepared to commence converging to the vanguard of European Union Member States. However, the Irish society will have to pay a steep price for the opportunity of this economic convergence in future, and should also reckon with a number of risk factors in this process.
Tamás Pesuth and Bendegúz Tamás Varga present the work of Yuval Noah Harari titled „Money".
Editorial of Public Finance Quarterly
State Audit Office of Hungary