Vienna For years, Hungary’s Prime Minister Viktor Orban courted foreign investors, and they were happy to accept the advances. But now the mood has changed. Hungary’s government is imposing special taxes on more and more companies and coming up with harassment. The companies feel patronized by the state.
Your displeasure is great. But hardly any business representatives dare to openly express their anger. The fear of economic reprisals is too strong. However, Michael Silly from the medium-sized paving stone manufacturer KK Kavics Beton says: “The legal certainty in the country has become very questionable.” There is an increasing lack of planning security. KK Kavics Beton is the subsidiary of a German holding company.
Philipp Haussmann, head of the Ernst Klett publishing house and spokesman for the Central Eastern Europe working group in the Eastern Committee of German Business, makes a similar statement: “More and more foreign companies have the impression that they are no longer welcome in strategic sectors.” However, investment security is not in the European internal market negotiable.
Powerful large corporations, such as the cement manufacturers Heidelberg Cement and Holcim, are also affected by Orban’s increasingly erratic economic policy. For around a year and a half, they have been paying a so-called mining levy above a certain cement price, which is currently below the production costs. So both companies inevitably write losses with the Hungarian business.
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The retailers, including the foreign providers Lidl, Spar, Tesco and Auchan, and the airlines also pay special taxes for all departing passengers. When Orban introduced a ticket tax in early summer, he drove Ryanair boss Michael O’Leary mad. It is “beyond stupid” what Hungary is doing there.
Arbitrary special tax or crisis contribution from companies?
The government sees taxes as a levy for crisis winners. According to their interpretation, companies are making excess profits thanks to inflation.
The Hungarian prime minister is increasingly angering foreign companies.
(Photo: dpa)
The companies see it differently. “The government attacks all companies that don’t have legs to run away,” says the representative of a large corporation. Usually only foreign companies are affected by the special taxes. There are three cement plants in Hungary: one belongs to Holcim, two are owned by a joint venture of Heidelberg Materials, formerly Heidelberg Cement.
Foreign companies have a strong, sometimes dominant position in many sectors. And these companies transfer billions in interest, dividends and licenses to the headquarters in Western Europe. Orban has been pursuing a plan to reduce this one-sidedness for some time.
In February, speaking at the Chamber of Commerce, he said the government had managed to increase the share of domestic investors in the energy, banking and media sectors. “But there are sectors in which we don’t look good yet.” Specifically, the Prime Minister meant the insurance industry, telecommunications, retail and the building materials industry.
Foreign companies are getting fewer investment permits
Apparently Orban is trying to wear foreign companies down with special taxes. They should sell their property or at least partially open the shareholder base to local investors. It is fitting that companies also complain about harassment. It seems as if certain permits are no longer being granted to foreign companies in strategic sectors, says Ernst Klett’s Haussmann.
The Hungarian forint is weak, which makes life more expensive for many Hungarians.
(Photo: Reuters)
An example of this is Budapest Airport, which has been the subject of a power struggle for some time. It is owned by the German company Avi Alliance, a pension insurer from Canada and a sovereign wealth fund from Singapore. The government has repeatedly tried to take over the airport. The investors did not respond to this, they rather want to expand the airport themselves. However, the state does not grant any permits for this.
Part of the state’s bidding consortium was rich property owner Daniel Jellinek, a real estate entrepreneur close to Orban. Such interconnectedness fuels the suspicion among foreign investors that Orban’s Magyarization campaign is not at all about spreading wealth across the country. Rather, he strives to make allies happy with good investments.
These opaque ties between Orban and a circle of businessmen are also one of the reasons why the EU is currently not transferring any money from the cohesion fund and the recovery fund (Next Generation EU) to Hungary.
Price caps have led to shortages
The country would urgently need the funds because it is in a desolate economic situation. The domestic currency, the forint, is weak, making imports more expensive and burdening companies and consumers.
>> Read also: Orban’s price cap creates a scarcity economy in Hungary
Inflation has gotten out of hand. In November it was 22.5 percent. The rise in food prices is particularly steep at 43.8 percent. Hungary is a relatively poor country. This means that people spend a large proportion of their income on food. The enormous price increase hits them so hard.
Orban wanted to fight inflation with price caps. Such apply to eggs, potatoes, sugar, flour and chicken breasts. But subsequently some of these goods became scarce and retailers introduced rationing.
The turbulence on the petrol market was particularly severe. On the one hand, the upper price limit for fuel boosted demand, for example from “tank tourists”. Oil companies, on the other hand, curbed supply.
Price caps for food have sometimes led to shortages.
(Photo: Reuters)
As a result, small gas stations got into increasing difficulties. On the night of December 6th, the government surprisingly decided to lift the price cap. Gas now costs around 30 percent more than before. This will further fuel inflation.
Orban’s way of fighting inflation has meanwhile lured György Matolcsy, the head of the central bank, out of his reserve. Hungary’s economy is on the brink of a crisis, he said, and economic policy is to blame. The price caps would have further fueled inflation. This is because the retail trade compensates by balancing price caps with increases in other products.
The majority of the population still seems lethargic about the economic difficulties. However, one professional group is now rebelling: the teachers. For weeks they have been demonstrating for higher wages and more freedom in the choice of school books.
More: Orban blocks where he can – the EU partners are outraged