The Hungarian Cabbage Tax Policy

I was watching my gulyas leves cook and reading through George Lang’s well written cookbook, George Lang’s Cuisine of Hungary, when I came across the section on ‘Potted Cabbage: Pickled or otherwise.’ The opening passage struck me. It turns out that understanding Hungarians’ passion for cabbage is also a great way to understand the current economic policies that are being implemented by the still relatively new Fidesz Government.

Every small nation must be chauvinistic in order to survive. There was a Hungarian professor, one Horvath by name, who carried this chauvinism to the extreme of trying to show that everything originated in Hungary, including Paradise. He even tried to provide a native etymology for cabbage, and that is not too strange when one considers that Hungary has probably invented more ways to prepare cabbage than any other nation. However, the Hungarian word for cabbage come from the Latin caput, meaning “head” (George Lang’s Cuisine of Hungary: p281, 1971).

I think we would all welcome the idea of Paradise in Hungary, but that does seem a little remote for the moment. Rather, it is an era of re-emerging nationalism. Characterized by the borderline chauvinistic national candor of the Hungarian Prime Minster,  Viktor Orban. In assessing his second economic plan for the country, it is clear that there is now the creation of a ‘native etymology’, not for cabbage, but for taxes.

I try not to place too much importance on politicians and nationalistic discourse, as economic policy and even the larger society can often carry on as normal (although that is a loaded statement – space is limited). What is emerging in Hungarian economic and social policy is this nationalistic chauvinism that directly effects the economic prospects of the country. And this has me concerned.

The introduction of new corporate taxes and the altering of the normal financial management of pensions is tinged with a nationalistic flare. This ‘reorganization’ appears both the expression of national chauvinistic interests and the attempt to create yet another new economic system.

Orban has already been noted for outlining the decline of neoliberal capitalism, that led us into our current financial crisis. The firm attitude against the IMF – in favor of international market financing of the country’s debt – while contradictory, also matches what is emerging as a decisive management style. With no public-private-partnerships currently being allowed, and the significant banking tax and now the taxes on other key economic sectors. Things appear black and white. If they are black they are cut down – even if they will impact those in the white.

The proposals this week for taxes on the energy, telecoms and retail chain stores is also part of a wider economic program that includes a flat personal income tax starting in 2011. Emerging this past week was also the freeze on the transfer of private pension contributions, which the state will hold onto for the time being (or until private pension plans are abolished in favor of a single state system).

Hungary, just as for the cabbage, is coming up with new taxes and financial arrangement that no one else could have dreamed of. Who could think of a special tax on grocery stores? Who implements a policy to prevent the transfer of pension payments? Now that it is getting colder out will there be a special tax on any product containing cabbage too? What kind of caput thinks of these policies and the astronomical tax rate (profit margins on retail chains are below 5%)?

I don’t mean to make light of the dire financial situation Hungary is in, or the radical economic restructuring that must be instituted in Hungary. But these taxes and financial arrangements are for short term gain and only provide long term instability for economic growth and business investment. The creative taxing plans create heightened uncertainty for other sectors, which could be affected if more tax revenue needs to be found. If the government does not operate  along EU rules (telecom’s tax illegal under EU rules),and does not apply a coherent long term tax structure enabling firms to create predictable financial and investment plans, then economic growth will not just stagnate but fall. The Government says the emphasis is now on SME’s for providing Hungary’s economic growth, but can they grow if the banks, because of the banking tax, are not lending money ?

Serving a good sauerkraut in Hungary takes months to prepare. George Lang recounts how families would prepare the cabbage in a large barrel in the kitchen then place it in the cellars for months before eating.

The good day’s hard work was amply rewarded a few months later on a snowy winter Sunday when the family sat around the table to enjoy the aroma, color and taste of a Transylvanian cabbage made with perfectly pickled sauerkraut (George Lang’s Cuisine of Hungary: p282, 1971).

Creating the right economic environment to foster long term investments takes longer than creating a tasty pickled sauerkraut. Building a national economy based on predictable economic and tax policies is what leads to job creation and long term economic growth. Creating new Hungarian recipes for higher tax revenues will taste like sauerkraut gone bad- even for German investors.