Hungary: robbing the rich

Natural gas tariffs rise across Hungary on Wednesday, though many citizens will not feel the pinch -- about 60% of households are eligible for support with household bills, and less efficient district-heating, which costs about twice as much. To fund the latter, at a time of still-high energy prices, the government proposes to introduce on January a ‘Robin Hood’ energy tax on oil and gas producers and traders, and distributors of electricity and gas.  The 8% windfall tax is expected to raise about 30 billion forints (183 million dollars); the government isalready spending 3 billion forints this year to support poorer households’ district-heating bills.

The tax is a populist move from the minority Socialist government that on present polling will lose the 2010 elections.  The Socialists are putting pressure on opposition parties ahead of a budget vote that they might lose, and may be exploiting popular feeling against ‘fat cat’ energy companies benefiting from high prices -- a government spokesman their put their profits at nearly 500 billion forints last year. 

It might be argued that a better choice for the government should be cutting Hungary’s state spending, including subsidies, rather than increasing the burden on firmsand deterring investment by raisingcorporate taxes. Hungary’s external debt is rising -- the IMF warned in September that gross external debt was now equivalent to about 100% of GDP -- at a time when international borrowing is becoming more expensive.  However, the windfall tax is too important to the government to scrap. It subsidises pensioners, more or less the only remaining supporters of the socialists:  the prime minister admitted in his own blog that pensioners are his main constituency, and that he will do anything in his power to save them from ‘shock therapy’.