The tax on the super-rich – or can a well-designed wealth tax save the economy?

Over the past forty years, the scale of wealth in advanced economies has grown from three times to more than six times national income, while its distribution has become increasingly unequal. Despite the fact that public finances are under enormous pressure worldwide, most governments still refrain from directly taxing wealth.

Supporters of a wealth tax argue that current tax systems are unfair, as they primarily burden labor, while the wealthiest can easily avoid income tax by not selling their assets. A well-targeted tax could generate substantial revenues from a narrow group. In addition, it would encourage asset owners to invest their capital in more productive, higher-yielding opportunities instead of keeping it in underutilized assets.

Despite all this, its introduction could face numerous difficulties and even fail.

The challenges of introducing a wealth tax and the reasons for past failures

Critics argue that a wealth tax is complex, costly to administer, and often fails to generate the expected revenue. A major practical difficulty is valuing hard-to-assess assets such as private companies, agricultural land, or works of art. Another issue is the situation of “asset-rich but cash-poor” taxpayers—for example, retirees who live in high-value properties but lack liquid income to pay the tax. In the past, several European countries abolished this type of tax due to capital flight and low effectiveness caused by loopholes.

How can a wealth tax be viable and beneficial?

A wealth tax is not doomed to fail, as demonstrated by the long-standing and sustainable systems in Switzerland and Norway. The key elements of a successful model include:

• High threshold: The tax should target the “truly wealthy,” not average citizens.
• Low tax rate: A 1% tax rate, as currently proposed in some places, is high by international standards; the Swiss example shows that differing cantonal rates can even influence intra-country wealth planning.
• Broad tax base: Exemptions must be carefully designed to prevent tax avoidance while allowing relief for wealth reinvested domestically— even if it does not appear as cash—thereby encouraging investment in the national economy and workforce development.
• Offsetting or reducing other taxes: Revenues from the wealth tax could be used to lower other taxes, such as those on labor, inheritance duties, or capital gains.
• Long-term economic sustainability: The system must fit coherently into the tax framework without loopholes or opportunities for tax avoidance and wealth shifting (e.g., offshore structures, foreign trusts, and asset management foundations).
• No incentive for capital flight: It should not encourage wealthy individuals to move abroad or shift their investments overseas.
• Fair burden-sharing: It should ensure equitable participation in public finances and avoid creating social tensions.

Although the introduction of a wealth tax may encounter political and practical obstacles, a well-designed system could be the fastest way to reduce dangerously high levels of wealth inequality and stabilize modern economies.

How can a wealth tax encourage more productive investments?

Based on the sources, a wealth tax can promote more productive investment in the following ways:

• Taxation independent of returns: A wealth tax is levied regardless of the actual return generated by assets. This means owners must pay the tax even if a given asset (e.g., a vacant property or underperforming stock) produces no profit.
• Incentive to seek higher returns: Since the tax must be paid regardless, owners are discouraged from holding assets that generate little or no return. This pushes them to reallocate capital toward higher-yielding and more productive investments that can cover the tax burden and still generate income.
• Substitution for other capital taxes: In theory, introducing a wealth tax could allow for the replacement or reduction of other capital taxes, steering economic actors toward more efficient and optimal investment decisions.
• Reducing the tax burden on labor: Revenues from a wealth tax could be used to reduce taxes on labor, which could generally improve economic dynamism.

In summary, a well-designed wealth tax can help ensure that capital does not remain “idle” in low-utilization assets but instead actively contributes to economic value creation.

Conscious asset management at home and abroad

Key concepts related to wealth tax

Wealth tax

A type of tax levied on the total net wealth of an individual or a business.

Net wealth

The total value of assets minus outstanding liabilities (e.g., mortgages, loans).

Asset categories

The components that make up total wealth, including:

• real estate
• bank accounts and cash
• stocks and bonds
• business ownership stakes
• vehicles
• artworks, jewelry, etc.

Market value (fair market value)

The estimated price at which an asset could be sold on the market. The determination of market value may be carried out by an expert using regulated methodologies.

Wealth taxation in Hungary

Hungary currently does not have a general wealth tax (i.e., a tax levied on the entirety of net wealth). However, there are several wealth-type taxes that both individuals and companies must pay on certain assets:

• Building tax and land tax: These may be imposed by local governments. They are typically based on square meters (for buildings) or land area rather than property value, but they function similarly to wealth taxes. Companies must also pay building tax on real estate they own.
• Motor vehicle tax: Paid by the operator (owner) of the vehicle, based on engine power (kW) and age. This applies to both individuals and companies.
• Transfer duty (property acquisition tax): Payable when purchasing, inheriting, or receiving real estate or vehicles as a gift.
• Company car tax: A tax paid on passenger cars owned or leased by companies if the related costs are accounted for.