Orbán’s government charges non-Hungarian drivers 60% more to refuel their cars

BUDAPEST, Hungary (AP) — Hungary has reduced the price of gasoline at the pump, except for cars with foreign license plates. Daily News Hungary reports that foreigners – including an American – have been sentenced to prison terms for illegally buying fuel at a price cap.

The US citizen, described by the site as Romanian-Hungarian-American, allegedly bought fuel from a vehicle with stolen Hungarian license plates and received an eight-month suspended prison sentence.

Viktor Orbán’s right-wing populist government is also taxing what it calls “extra profits” from industries, including airlines, with carriers like Ryanair RYA,
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RYAAY,
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and EasyJet EZJ,
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ESYJY,
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raise ticket prices to cope. The Nationalist government says it is trying to mitigate an economic slowdown and the highest inflation in nearly 25 years amid Russia’s war in Ukraine, but the central European country’s unusual moves are alienating businesses and threaten a new deadlock with the European Union.

The European Union has asked Hungary to remove the effective surcharge until it can determine its compliance with the bloc’s rules against discriminatory pricing.

With these interventionist measures, which also include capping the prices of certain food products, Orbán abandons the conservative financial model of deregulation and free market capitalism.

Extract from the archives (May 2022): ‘Orbanization’? CPAC meets in Budapest as US right-wing embrace of Hungarian autocrat Orbán’s model of “illiberal democracy” tightens.

The policies have helped lower some prices for Hungarians, but some multinational and national companies say they hurt their bottom line and competitiveness. Meanwhile the EU has raised questions about whether the policies are in line with its rules, following clashes between the 27-nation bloc and Hungary over rule of law and corruption issues .

EU challenges a requirement introduced in May that drivers with foreign number plates pay market price for fuel at Hungarian service stations, preventing them from buying petrol and diesel capped at 480 forints ($1.25) per liter since November.

Representing a price hike of up to 60% for drivers of vehicles registered in other countries, the EU has asked Hungary to remove the requirement until it can determine whether it complies with block rules or face legal action, calling it “discriminatory”.

The fuel price cap has given Hungary one of the lowest fuel prices in the EU, leading to fuel tourism and increased demand leading to late supply and shortages .

“The government had to act, but instead of opting for a more market-friendly solution, it opted for something that goes directly against the values ​​of the European Union,” said György Surányi, an economist and former Governor of the Central Bank of Hungary. Associated Press.

In a radio interview last week, Orbán blamed the war in neighboring Ukraine and EU sanctions on Russia on Hungary’s economic woes: its currency has weakened to record lows and inflation under underlying rose to 12.2% in May. In comparison, consumer prices increased by 8.1% in the 19 countries using the euro.

“We are now in a war situation, and this must be resolved,” Orbán said. “[Companies] will have to shoulder more of the burden than they normally do because Hungarian families cannot afford the price.

Extract from the archives (March 2022): Hungarian Orbán resists Zelensky’s emotional call to supply arms to Ukraine and apply sanctions against Russia

The Orbán government has also imposed a windfall tax on companies in sectors such as banking and airlines that have recently made “extra profits”.

His government, also facing a spiraling budget deficit after spending billions on handouts ahead of the April election, said sectors from banking to insurance to airlines that enjoyed “extra profits “resulting from the surge in demand after the pandemic should contribute to economic recovery.

It imposes a windfall tax on July 1 that will last until next year, hoping to raise 815 billion forints ($2.1 billion) to maintain a flagship program that lowers utility bills public and strengthens the Hungarian army.

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Some targeted industries like fossil fuels and banking are making higher profits than usual, but most are not, Surányi said.

“It’s not an exceptional tax, it’s a confiscation of the capital of these companies, which goes against the rule of law,” he said. “Airlines certainly don’t have windfall revenue.”

Several commercial airlines agree. The CEO of Ireland-based low-cost airline Ryanair called the tax “highway robbery”.

” We call [Hungary’s government] to reverse this silly ‘excess profit’ tax, or at least limit it to industries like oil and gas that are making windfall profits, not airlines that are running record losses,” said CEO Michael O’ Leary in a statement.

Ryanair, along with British low-cost carrier EasyJet and Hungarian low-cost carrier Wizz Air WIZZ,
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WZZY,
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said they would add around €10 (the euro and the dollar are currently close to parity) to each ticket to cover the costs of the new tax.

Hungarian commercial bank K&H Bank said it would also raise its fees.

A government statement said companies should not pass the costs on to customers because “Hungarian families should not have to pay the price of war”.

“The government has already indicated that it will thoroughly investigate each suspected case and take strong action against harmful practices,” the statement said.

Hungary has launched a consumer protection investigation against Ryanair for raising ticket prices.

Some Hungarians, who earn some of the lowest wages in the EU, say falling fuel prices are keeping them afloat as the costs of other goods, especially food, continue to rise.

“I think it’s good for us, but I’m not sure it’s sustainable in the long term,” said Nikoletta Palhidi, a nurse in the village of Hetes, as she refueled her car recently. “I don’t know if the state can sustain all of this.”

József Tóth, a retired farmer from a small village in southwestern Hungary, said that in addition to his meager pension of around $250 a month, capping the price of petrol has eased the burden. But he was unsure about charging foreign vehicles more for fuel.

“It’s good for us, but it’s a bit strange that foreigners have to pay more. If we were going [to their countries]they would sell it to us for more,” he said.

While drivers have been relieved, owners of small gas stations are seeing significant shortfalls as they make no profit, said János Baintner, owner of a small gas station in Somogyvár, in the southwest of Hungary.

Baintner said the price cap had caused him a shortfall of about 2 million forints ($5,200) a month since November and had endangered the livelihoods of about 10,000 families who depend on the work in small service stations.

“If our profit margins are guaranteed, then we agree that fuel has to be cheap in the interest of protecting families,” Baintner said. “But it’s not up to us to pay the price.”

Surányi, the former governor of the Hungarian central bank, agreed. “I have sympathy, if there is room, to reduce the burden on households once such external shocks arrive,” he said. “But to reduce the burden, the reasonable approach is definitely not a price cap.”

MarketWatch contributed.

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Laura T. Thrasher