Hungarian e-Government: on the verge of collapse?

This year's tax season will determine whether it's already the end of the beginning for Hungary's experiment at e-Governance

In most part of the world, it's tax season. From the beginning of the year until sometime in spring, people in most countries around the world hurry to send in their tax returns on time. Governments, meanwhile, are keen to make sure that this process runs as fast and as smooth as possible. After all, it's their revenue which is at stake.

With the advent of computer technology and the Internet, the business of filing tax returns have become gradually easier for some people. Naturally, this all depends on which country you live in, as some have only recently adopted the notion online tax returns.

Yet even in those places where the technology for electronic tax returns do exist, people still need to be convinced that these new methods are worthwhile in terms of time and cost. Of course, there are some basic constraints such as the need for a computer, Internet access, and a measure of digital literacy. Aside from this, however, old habits die hard.

Nonetheless, some governments have attempted to catapult their country into the 21st century, much in the same way that during the former communist regimes in Central and Eastern Europe similar attempts were made to bring society up to speed. In most of these cases, unfortunately, such experiments ended in dismal failure, the legacy of which can still be seen today throughout the region. Hungary is one such country which has recently decided to mix bygone methods with new technology.

As of 2007, the vast majority of taxpayers in Hungary have been forced to file their tax returns electronically. All businesses are required to do so, and the plan is to eventually have all individuals forced to do so as well.

The advantages of electronic tax returns are quite obvious to most, and have been emphasized by the government in their propaganda offensive over the past couple of months. The keyword here is the "ease" with which business and individuals are able to arrange their financial affairs.

Yet the Association of Hungarian Accountants thinks otherwise. They see many problems with the new system, and feels that if the government continues to plough ahead without taking into account these problems and rectifying them first, then the entire system could very well collapse by the end of January or the beginning of February. The Prime Minister's Office, however, is convinced that they have everything under control and are ready for the onslaught.

Since the deadlines for tax returns this year have converged toward the month of February, a lot more information will be flowing through the tax authority's server in a much shorter period of time. Previously, about 85,000 returns were processed at the beginning of February; this number is expected to exceed over a million.

The pressure of this information inflow will be especially severe as the deadlines approach. It's a universal axiom of sorts that people file their taxes at the very last minute; post offices are usually open until midnight in order to handle the overflow. Indubitably, such an overflow on the Internet will have a similar effect -- yet with a much more devastating impact. With all tasks and processes centralised in one place, a failure at this juncture due to information overflow will no doubt lead to chaos.

Hiding chronic inefficiencies

Compounding the problem further is the fact that what is at stake is not only the processing of electronic tax returns. Private pension contributions are now also paid and processed first via the tax authority. Thus, the country's pension systems could also face severe delays.

In a perverted sort of way, it's perhaps the tax authority's intention to have some services, such as private pensions, get stuck in a queue. The government is under an extreme financial crunch, and is looking for ingenious ways to squeeze revenue from where they can -- by hook or by crook. In some sectors, such as public health, this is done by charging a small fee for each visit to the doctor and for each prescription filled.

Yet in terms of paying income tax, the procedure is much more blatant. For example, starting this year businesses must declare their income tax ahead of time. If they fail to declare enough, they are then fined; if they declare too much, the amount is not refunded but simply carried over to the next year. Thus, in order to avoid a possible fine, most businesses will declare more than necessary.

What all this means is that not only does the government secure its revenue ahead of time, but it has access to more capital than it's entitled to. It goes without saying that all this extra cash is interest-free. Thus, by also having some services, such as pension contributions, stuck in a queue prior to being forwarded to the relevant recipient (in this case the private pension schemes), the government is able to tap into an extra stream of interest-free money.

All this, in turn, helps to hide chronic inefficiencies, such as government over-spending and debt, as shortfalls are continually financed by future contributions. Furthermore, since this all takes place within the internal workings of the tax authority, much of this debt can be hidden from the General Accounting Office through various tricks of the trade. It goes without saying that within the EU Hungary is well-known for creative bookkeeping practices.

Still, this all could collapse if the system breaks down completely. This is all the more likely as the government recently fired half of its computer technicians, many of whom were responsible for data entry. Meanwhile, accountants and bookkeepers are dismayed at the lack of co-operation they are getting from the authorities. Some note that already there are delays and that the entire process has been working a lot slower than promised. The government, however, seems oblivious to the complaints.

Over the past few years, the notion of e-Government has received a lot of hype. Yet this concept has really little to do with government (and all its aspects) as much as implementing a cheap and easy way to administer government bureaucracy. It can be said that electronic tax returns is one of the flagship projects of this concept, and in some countries it has been running well now for a number of years. Yet in other places, like Hungary, this concept is at crossroads. Thus, it's possible collapse not only means that Hungary will fail in its attempt to catapult to the 21st century, at least in terms of income tax collection; it also means that the country will take another step or two back in the opposite direction. (John Horvath)