Tag Archives: tax

The rebirth of Hungary and the fall of Neoliberalism

I thought I would post a few interesting statements by Hungarian political leaders I came across this week, along with a brief personal reflection.

Reuters:

 

“We do not have a serious national industry so in order to reanimate the national industry we need to take such tough steps as for example reclaiming MOL,” Peter Szijjarto told private broadcaster HirTV in an interview.

“In order to make Hungary strong again, we need to eliminate energy dependence, and we need to restore the national character of our strategic companies in parallel with their international operation,” Szijjarto said.

He did not elaborate on the possible further steps or the areas of industry involved.
Source

MTI:

Neoliberalism is over

Prime Minister Viktor Orban told a conference assessing the first year of the centre-right government on Tuesday.

“While we have put an end to the basic principles of a neoliberal era, we have yet to build up the non-liberal economic policy of the 21st century, in terms of planning, coordination and practices,” he said, adding that because there had been no planning in the real economy, financial planning was askew.

Orban went on to reject the idea that Hungary should listen to foreign criticism.

“It is worth listening to ourselves and we should not wait for either approval or the contrary,” Orban said.

“In the past we have often abandoned important plans just because someone in America, Paris, Berlin, Brussels or London didn’t like it and let ourselves be discouraged, only to give up on the whole thing in the end,” he said.

“The old world order is on the verge of collapsing; we have no reason to wait for the advice and opinions of opinion-shapers stuck under the rubble,” Orban said.

He said Hungary was still likely to come under attack for various reasons, including the new constitution and economic policy.

“We say, however, calmly, politely and unflinchingly: this is none of your business; this is the business of Hungarians,” the prime minister said.

source

The Internet:

They fought for freedom to join the West

Towards the end of the Second World War, Hungary is occupied by the Soviet army and all streets, squares, institutions are renamed. People who continue to use the old names are arrested and beaten up by the communists.

Immediately after the occupation, an old man from a village, visit’s the country’s capital, Budapest.

He gets lost. Not knowing that the streets have been renamed, he ask people for various place names.

Old man: “Excuse me, sir, where is the “Heroes’ square”?

Pedestrian # 1: “No, old man, don’t use that name! It’s “Stalin Square” now!”

Later…

Old man: “Excuse me, sir, where is the “Chain Bridge”?

Pedestrian # 2: “Oh my God! Don’t use the old name of the bridge! It’s “Red Army Bridge” now! If you say that once more, you could get into jail, be careful!”

The old man gets terrified and takes a walk on the bank of river Danube.

He’s spotted by a soviet officer who shouts at him with anger.

Soviet officer: “‘Ay, old komrade! What ‘r’ ya lookin’ at?”

Old man: “Nothing! I’m just admiring the Volga!”

Source

Hungary after the fall of Neoliberalism

MOL and Hungarians Lose – Surgetneftegaz and Orban win! (and I predicted this)

My wife came back from the children’s hospital the other night after the doctor unclogged the poo that was a major discomfort for our young son. “You would think that they could spend some money on soap in the hospital,” she said. Any hospital that we have been in Budapest does not have soap in the public areas, including the bathrooms. When my wife gave birth – no soap, when I go to the doctor – no soap. But I’m not a medical doctor, just a doctor of the books, so maybe it is alright to be in a hospital and not wash your hands.What could happen?

Exposing your backside

Oh – energy security. So the Hungarian government spent 1.9 billion Euros of the IMF money that was meant to save Hungary from economic ruin. They did this to take control of their energy security so the Russians couldn’t threaten to take over one of the few companies that is economically successful and is an integral part of the Hungarian economy. The reasoning, as stated by Prime Minister Orban, and reported by Portfolio.hu:

The PM said the government “fought a tough battle in the past year”, but Hungary has managed to “bring to safety” its national company that has a key importance for the country. One of the keys to success in the region is the reduction of its energy dependence and the revival of national industries, he said, adding that the Hungarian government must always stand up to defend its interests. “No country can be strong if its energy supply is exposed,” Orbán added.

It was a good thing that Orban didn’t turn around while stating this because Hungary is still hugely exposed to the ‘whims’ of Russia. Most – if not all – of Hungary’s oil and gas comes from Russia.

There are a lot of aspects to this story to explore, and as with the aftermath of any big game, it will take awhile to analyze it all (I’ll have another post later on this). But it is fair to state, that I predicted that this would happen, as it was previously proposed in Tajikistan. Forcing the Hungarians to pay out money for a questionable increase in energy security (you think Orban reads my blog?). It is the citizens of the country that are being forced to pay for this stock buy, over more effective investments in either the economy or social programs.

Hungarians in Tajikistan selling bread to pay for their MOL shares

I questioned following this Tajik model, because it does not improve Hungary’s economy, society or energy security position. Rather, it becomes more state owned, as in the good days of Communism. The energy security argument that the government is spinning for MOL, is there should not be Russian ownership, or even a foreign government’s ownership in a nationally important energy company. This is one of the arguments that successive Hungarian governments have used for protecting MOL. However, it is now the case that the Hungarian government also owns, through MOL, almost a majority of the Croatian oil and gas company, INA. This should really strike some pride into Hungary’s right wing – including Fidesz. But it is questionable as to how much Hungary’s energy security is undermined if is already supply dependent on the Russians.

It is also stated that relations with the Russians will now improve, since ownership in MOL was a major sticking point in any negotiations between the two countries.  Development Minister Tamás Fellegi stated that this was a major hindrance in Russian-Hungarian relations, but the buy-back was connected with no other developments. There is no doubt Surgutneftegaz’s ownership in MOL did cause friction between the Hungarians and Russians, but it is also a fact that Hungary’s relations even with EU neighbors is at historic lows due to their inept handling of foreign and domestic policies.

The fact that the Hungary could not connect the buy-back with any other projects with Russia indicates the lack of effective negotiating position that the Hungarians deployed. This is a major win for the Russians (as they made a 500 million Euro profit), and if part of this was to improve relations between the two countries, then at least there should be a symbolic cooperative development that both countries could show demonstrating that things are back on track. Essentially, if you hand over 2 billion Euros there should be some room for smaller cooperative projects to be at least publicly announced – demonstrating a new period in Hungarian-Russian relations. The fact that this did not occur, does indicate the continuing tension between the countries.*

Finally, MOL should be worried. As the Development Minster indicated, the government has plans to increase its shares in strategically important sectors. With this hefty bit of MOL, combined with the shares from the pension funds that were nationalized at the start of 2011, the government has a nice chunk of MOL. If MOL management was worried about Austrian or Russian influence in company operations, it should be equally, if not more concerned about the Hungarian government becoming involved in its operations. The success of MOL is down to it withdrawing from the gas retail sector and focusing on transportation and storage. E.ON and others, are now losing money because of the price pressures placed on them by the government. MOL, has made clear in Croatia – through INA, that losses in this distribution sector will need to be covered by the government or they will sell it –  like in Hungary.

It is too early to tell, how the government will begin to impact the operations of MOL. But the infusion of politics into company operations could be expected. If Orban’s and Fidesz’s proclamation to the nation that is now posted in every public office makes its way into MOL offices and refineries, then we will know the new owners have something planned. Essentially, if the government pays out 2 billion Euros out of the rainy day fund, and walks MOL home, they are expecting more than a kiss at the door.

The explanation that the Hungarians wanted to sooth relations with Russia for the price of 2 billion Euros, doesn’t really stand up. We took our son to the underfunded hospital because his poo was causing a big discomfort to him. Did the Hungarians really pay out 2 billion Euros to ease their discomfort? Or did they really pay that amount to begin their path at gaining ownership in strategically important industries? This last point is only half true. As I wrote previously,

With some … significant government ownership [in private energy companies], the Orban government will realize its objective of imposing state ownership over the countries energy assets – and somehow keep prices low.

As I said before, and even in my Tajik commentary, I feel absolutely crazy for writing these statements. But this is what has now transpired, and as the government continues to consolidate its ownership – in a Hugo Chavez style, the Hungarian taxpayers citizens (there are only 2 million taxpayers in Hungary), will fail to realize the benefits of either a market economy or democracy. This is how high the stakes are now becoming. So Hungarians (and foreigners) should not expect any soap in the hospitals in the foreseeable future, while they pay off their IMF loan that financed the purchase of a minor amount in Central Europe’s most successful energy company.


*note: yesterday was the first day that the metro arriving at Moskva ter that it was announced it had reached “Szell Kelmen ter.” The reaction of people in the carriage was not positive, maybe the Hungarian government could keep Moskva ter to foster better relations with the Russians. But then, they also got rid of Roosevelt ter – the Orban government really is not concerned with improving relations with any country.

Coffee tax! Tax my Cabbage Instead

According to a report over at Portfollio.hu, the government may be considering additional tax measures that are unimaginable. One particular tax goes beyond my earlier blog posting about the creativity shown in Hungarian tax policy, to that resembles the diversity of cabbage dishes in the country. I mainly was referring to the different crisis taxes on energy, retail, banking and anything that can’t flee the country. Now it seems they may tax coffee!

The government also contemplates levying a “hamburger tax” on unhealthy food products and beverages. The tax would be slapped on some fast food, coffee, sweets and coloured beverages (e.g. Coke).

I’m not going to argue against a tax on unhealthy food – as health campaigners have some strong points, but clearly this tax is not about improving health, and more about finding ANOTHER thing that can’t leave, to be taxed. So I think we can add to the long list of sectoral taxes, not just in the energy sector but also in the ‘fast food’ and ‘processed food industry’.  Actually I can handle all these taxes, but not the tax on coffee!

Is it too soon to start the international public outcry that surely must be bigger than the one of the Hungary’s media law?

If the earlier taxes didn’t drive investors away, this one most certainly will. “Invest in a country that taxes coffee? Might as well tax cabbage.”

Tax my coffee?

No way!


Hungary is not ‘discriminative against foreign firms’ – really?

“I firmly reject that these taxes would be against foreigners … it is not true that this regulation is discriminative and against foreign (firms),” Hungarian EU affairs state secretary Eniko Gyori told reporters. (Reuters article).


My only response is to repost the following graphs displaying the nationality of companies affected by the ‘crisis tax’. Please note, the tax on energy companies does not include the ‘Robin Hood’ tax that was also extended.

The following graphs are from Portfolio.hu

Telecom

Retail

Energy

It just seems that Fidesz’s European view looks more like this, rather than the reality reflected in these graphs.

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.