Editorial: Without foreigners, we dance alone


The following is an Editorial from the November 28-December 11 print edition:

Back in May 2012, Prime Minister Viktor Orbán famously spoke of the “peacock dance” of diplomacy, in which one seeks to remain friendly with foreign powers, even while acting against their wishes. Perhaps we were seeing a bit of the dance at the 25th anniversary gala for AmCham on November 14, when Orbán described the special alliance between Hungary and America while acknowledging “disputes between U.S. corporations and regulatory authorities” and “debates on ideology or values”.

But when Orbán first explained his peacock dance, he said the point of it was to keep Western interests from pushing Hungary into doing something that is bad for the country. While protectionism may have a populist appeal, foreign investors and foreign companies are good for the country. The new tax laws and other recent policies that hurt Western firms also hurt healthy competition, and run the risk of driving away the foreign investment that brings jobs. These moves may be good for a few companies or individuals, but overall they are bad for the country.

Take the supermarket supervisory taxes and proposed Sunday closing laws. Local chain CBA, which is owned by László Baldauf, reputed to be a major campaign contributor to Fidesz, says it is in favor of the changes. Of courses it is: The law puts foreign chains like Tesco and SPAR in the highest tax bracket, while CBA is likely to fall into the zero bracket, simply because it uses a franchise-type structure. And if the Sunday law passes, with its loophole for smaller stores, CBA will be able to keep some stores open, while Tesco hypermarkets will have to forgo their 24-hour opening policy. Already, the big chains are projecting that the new tax could bring price hikes, which means Hungarians will pay more for food. The potential for long-term damage to competition is an even bigger concern.

The bank policy also has a populist ring to it: Make bankers pay for the pain of the 2008 financial crisis – caused in part by banks – by forcing them to pay for the losses borrowers felt due to the drop in the forint. And as long as Parliament is writing special laws regarding banks, why not pass a so-called “Lex OTP”? That law gives a tax break to firms that lost money due to the crisis in Ukraine, but it clearly helps OTP bank, owned by Sándor Csányi, a sometime close associate of PM Orbán. OTP is currently the biggest retail bank, and its services are often more expensive than others. If the government achieves its stated goal of 60% Hungarian ownership of banks by forcing out foreign firms, locals will have fewer alternatives to OTP, and can expect to pay even more for banking services. What’s worse, the pool of credit that funds businesses and home purchases will be smaller and doled out in a less competitive market.

Of course we can mention the special taxes aimed directly at RTL Klub, the TV station that is aggressively criticizing the government and is blatantly stuck in a punitive tax bracket by its foes in leadership. Fidesz makes no pretence of treating RTL Klub the way it treats other media.

Even the new tobacco tax hits foreign firms hardest. Phillip Morris and British American Tobacco are likely to pay tens of billions of forints in taxes while Hungarian firm Continental Tobacco Group would see an increase more in the order of tens of millions of forints.

Foreign firms bring investment, jobs, competition and goods that Hungarians want to buy. Populist, protectionist measures that hurt foreigners can benefit a few business people, but they are also likely to lead to less competition and fewer jobs. No matter how you try to dance around it, that’s bad for Hungary.


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