Sugar, flour, sunflower oil, pork and chicken meat, milk, eggs and potatoes.
Anyone who buys these products in Hungary can be happy. Because the nationalist Prime Minister Viktor Orbán has put a price cap on these foods.
Hungary has been hit hard by inflation. The inflation rate there in September of this year was 20.7 percent – and the trend is rising. It is higher only in the Baltic States. For comparison: In Germany it is 10.9 percent, in the euro area it is 9.9 percent.
Food prices in particular have risen sharply in the country, as “Bloomberg” reports. Hungary recorded the largest increase in food costs in the European Union.
Therefore, the government came up with the price cap for said products. These were already introduced in autumn 2021, and now they have been added for eggs and potatoes. Weekly markets are exempt from the covers.
“We looked at which staple foods have become more expensive, with eggs and potatoes topping the list,” Orbán’s chief of staff Gergely Gulyas told a news conference in Budapest. The price caps are to remain in place until December 31, with the option to extend them thereafter.
But this step poses a problem for supermarket chains from abroad, as reported by the news site “Politico”. The government in Hungary has been trying to regulate foreign chains in favor of domestic companies for some time.
Fidesz MP and government commissioner János Lázár has already called for the establishment of a purely Hungarian supermarket chain.
In December 2021, as rising food prices hit Central and Eastern Europe particularly hard, the government in Budapest passed a law requiring supermarkets with sales of over 100 billion forints (EUR 250 million) to donate groceries to a state charity 48 hours before their sell-by date handed over, as “Politico” reports.
This was followed by a price cap on six staples, including sugar, flour and chicken – with no compensation for retailers. And now the price caps for eggs and potatoes.
Even if all supermarkets in Hungary seem to be affected, critics complain that the aim is to punish what is by far the largest foreign supermarket chain in Hungary in order to help Hungarian market participants.
The Hungarian Today and the Hungarian news site Telex report that the food donation obligation law essentially means that “only the foreign-owned supermarkets are subject to the rules, while smaller retailers are excluded from the scope of the law”. Aldi, Lidl, the French chain Auchan, Spar and the British chain Tesco are among those affected.
According to “Telex”, Hungarian food retail chains such as CBA, Reál or Coop are not affected by the regulation because they have worked in a franchise system for a long time in order to avoid targeted regulations. And this despite the fact that they would reach the threshold of 100 billion forints.
Essentially, the largest chains would be stripped of parts of their products that are approaching their sell-by dates. These are products that these supermarkets might otherwise keep on their shelves and sell at full or reduced prices.
However, there were constitutional concerns about the law.
A much harder blow to the office, however, is likely to be the tax increases introduced by Orbán’s right-wing government. According to a report by the Dutch Ministry of Agriculture in June this year, Orbán had announced that he would impose additional taxes on certain sectors. His justification: “The ongoing war and Brussels’ sanctions policy.” They are the drivers of the high prices in the country.
His government wants to tax what he perceives as “additional profits” that banks and international companies would get from “rising interest rates and prices”.
From 2010 to 2014, Orbán’s government had already introduced additional taxes for food retail companies, which were also launched again during the corona pandemic. Now the financial sector, the telecommunications and energy sectors, the aviation industry, the pharmaceutical industry and the media are to be hit by a reintroduced advertising tax – and again by the food retail sector.
According to the ministry, this is primarily affected by the increase in the corporate tax ceiling in the industry. Your profits should be taxed in ascending order:
With the new policy of taxing “extra profits,” the tax rates on profits in the latter two tiers were increased from 0.4 percent to 1 percent and from 2.7 percent to 4.1 percent, the ministry report said.
“It is worth noting that of the 11 food trading companies with the highest turnover, only three are of Hungarian origin: Coop, CBA and Reál,” emphasizes the ministry. The top 3 are Spar, Tesco and the German Lidl chain.
The trend seems to be going in one direction: the “Hungarianization” of food retailing. “We have to increase the share of domestic ownership in the building materials industry and in food retailing,” said Economics Minister Marton Nagy, according to “Politico” in May.
An example of this is Auchan. Hungarian real estate developer Indotek has agreed to acquire a 47 percent stake in the local units of Elo, Auchan’s holding company. This was reported by the “Budapest Business Journal” in March.
A scam that is not new. Orbán has brought many sectors in the country under Hungarian control since 2010. Not infrequently, his allies and partners have benefited from it.
What do the affected chains say about this? The star asked Aldi, Lidl, Spar, Auchan and Tesco for a comment. At the time of writing this article, Aldi, Spar and Tesco have not commented.
When asked by stern, Auchan Hungary said that they did not want to comment on this.
Lidl informed the star on Wednesday: “We basically comply with legal requirements and face up to the competition in Hungary. We advocate fair competition and conditions that are the same for all national and international market participants. We want our positive Contribute to Hungary’s economy: For this we rely on long-term partnerships with numerous Hungarian suppliers, export over 700 Hungarian products to 28 countries and offer almost 8000 local people jobs at Lidl in Hungary.”
And what does the Hungarian government say? In response to a request from Stern, she said on Wednesday: “On May 1, 2020, the Hungarian retail tax, which is levied on all companies carrying out retail activities in Hungary, came into force. As a result of the economic crisis caused by the energy emergency and the threat of war , the Hungarian government imposed a one-off post-tax liability for taxpayers for the 2022 tax year and decided to increase tax rates from January 1, 2023.”
According to the government spokesman, the regulation “completely disregards the nationality of the retail company and its owners, so that Hungarian-owned companies cannot escape this regulation”. Retailers with higher sales would “naturally pay more taxes”. “Taxation is based on a strictly objective economic criterion, a taxpayer’s turnover, which reflects the taxpayer’s burden-sharing capacity, thus ensuring fair and equitable taxation.”
However, Tesco has already taken legal action against Hungary’s tax practice. The British retail chain went to the European Court of Justice – without success. The Hungarian system is in line with EU law, the judges ruled in 2020.
It won’t get any easier for the supermarket chains in the future, says Sam Baldwin from the Hungarian law firm Szecskay.
Price freezes would restrict the freedoms of the internal market and the free movement of goods, he told Politico. “While the Hungarian government will no doubt invoke consumer welfare as a legitimate defense, it still needs to demonstrate that the measure does not unnecessarily distort competition.”
However, the fact that public sympathy for the large retailers in Hungary is likely to be negligible in view of the increased prices should not be of much help. Added to this are the high sales of foreign brands in the country. Lidl recorded a profit after taxes of 17 percent, reports “Politico”.
Should the European Union intervene, Hungarians could perceive it as if Brussels were siding with the big chains in the time of crisis. For Orbán, who is critical of the EU, that would be a godsend. He could then continue to blame the EU for the problems in his country.
Note: The statements by Lidl and the Hungarian government were added later.
Sources: Government website of Hungary, “Telex”, “Politico”, Reuters, Associated Press and Bloomberg news agencies, Ministry of Agriculture Netherlands, “Budapest Business Journal”, InfoCuria, BNN Bloomberg, eurostat
