bne IntelliNews – Hungarian Official Threatens War on Foreign Retailers

Multinational retailers in Hungary could be bracing themselves for tough times after former Prime Minister’s Office chief Janos Lazar claimed Hungary should pursue an openly protectionist policy to squeeze out multinational retailers. Hungary has already reintroduced a progressive sectoral tax hitting large companies, while sparing local retailers operating with franchise models.

Agriculture is one sector of the economy that has not benefited from regime change or European Union membership, Lazar told an online agriculture conference hosted by business website Portolio on December 4.

Despite EU funding over the past two seven-year budgets, agriculture is lagging behind. “We are a country that exports raw materials and imports finished products,” Lazar said.

The next EU budget cycle is Hungary’s last chance to be a self-sufficient country with a strong food industry, he explained. Over the next 7+2 years, trillions of forints will have to be made available for agriculture, he added. Hungary should follow the examples of Poland and Slovakia, which have a higher share of locally produced processed foods.

Lazar said it would be in Hungary’s national interest to dominate this market.

In figures, this would amount to increasing the share of Hungarian-owned processing industry and locally produced food consumption to 80% each, resulting in an 80% share of the sector’s contribution by local producers.

Foreign traders under pressure

Earlier this year, the Court of Justice of the European Union (CJEU) ruled that Hungary’s progressive sectoral tax on retailers in Hungary was compatible with European Union rules. A few weeks later, the Hungarian parliament approved a turnover tax for companies. The tax exemption only applies to annual income of HUF 500 million (€1.38 million) or less.

Due to its progressive nature, the windfall tax is targeted at multinational companies while local retailers (CBA, COOP) operating with a franchise model would be spared the heavy burden.

The rate for turnover between 500 billion HUF and 30 billion HUF is 0.1%, between 30 billion HUF and 100 billion HUF is 0.4% and above 100 billion HUF the rate of tax is 2.5%.

The Orban government introduced windfall taxes for retailers in 2010, but was forced to withdraw them three years later after infringement proceedings by the EU. The case went to the EU court, which ruled in favor of Hungary. Among the top ten retailers, only two are owned by Hungarians. Recent years have seen a wave of hard-discount chains. Aldi, Lidl and Penny had pursued an aggressive strategy to increase their market share.

German hard discount chain Lidl became the second largest player in 2019 with a huge 25% year-on-year increase in revenue to HUF 685 billion, putting it in second place behind market leader Tesco. According to Trademagazin’s annual compilation of the 11 largest FMCG retailers, the UK retailer retained its leading position with HUF 740 billion in sales last year down 2.8% from 2018.

Tesco had 112 hypermarkets, 35 supermarkets and 55 convenience stores in Hungary. Spar saw its sales increase by 10% to HUF 680 billion. The two largest local retailers COOP and CBA were ranked fourth and fifth with annual sales of HUF 643 billion and HUF 538 billion respectively, a modest annual growth of 2.6 and 2.1%.

Analysts said crowding out multinationals would not solve the efficiency problems facing Hungarian retail chains. Employers would also feel the impact of a possible change in ownership and perhaps not to their advantage, said a union leader.

Lazar, a once powerful member of the Orban government, retired from national politics in 2018 after his unexpected defeat in a mayoral by-election in his hometown of Hodmezovasarhely. He won his constituency in the 2018 legislative elections. For a long time, Lazar gave the image of being the “nice” of Fidesz, ready to accept criticism and ready to compromise.

In rhetoric, he sometimes criticized government policies. He was appointed commissioner for the protection of non-smokers by Orban and earlier this year he was chosen to lead the Hungarian Tennis Federation after a corruption scandal.

With such proposals, many analysts say Lazar is pursuing an ambition to return to national politics ahead of the 2022 election.

Laura T. Thrasher