Gábor Stier, Foreign policy senior analyst at Hungarian conservative daily Magyar Nemzet
Prime Minister Viktor Orbán has already used the opportunity of the state of emergency to announce that he will impose a special tax on large companies in several strategic sectors as part of the common burden-sharing scheme. The Hungarian government considers these measures essential for successful crisis management.
Viktor Orbán's fifth government, which has held a two-thirds majority in parliament since 2010, has started its term with a series of strategic decisions. Parliament first passed the tenth amendment to the constitution, which allowed for changes to the Disaster Management Act. This allowed the government to declare a state of emergency in the event of armed conflict, war or humanitarian disaster in a neighbouring country. Justice Minister Judit Varga justified the move in her explanatory memorandum to the bills by saying that the extraordinary challenges of extraordinary times required the government to have more room for manoeuvre. Orbán then declared a state of a war emergency and used the increased room for manoeuvre. The government set up a utility bill security fund and a national defence fund, from which the utility bill cuts will pay for the strengthening of the defence forces.
"We will oblige banks, insurers, large retail chains, energy and trading companies, telecoms and airlines to pay a large part of their extra profits into these two funds," Orbán announced. Explaining the decisions, the prime minister said the war is dragging on, EU sanctions policy is not improving, and this together is leading to a drastic rise in prices. It is becoming increasingly challenging to protect families, and the defence forces must be strengthened without delay. In the meantime, banks and large multinationals are making extra profits through ever higher interest rates and prices. The government expects these measures, for 2022 and 2023 for the time being, to raise HUF 800 billion a year for the two funds, plus another HUF 100 billion from the tobacco tax, the increase in the public health product tax, other smaller tax increases. This will bring in 700 billion reserves a year for the fines protection fund and 200 billion reserves a year for the defence fund.
Thanks to the current measures, the government has set a deficit target of 3.5 per cent and economic growth of 4.5 per cent for next year. The government plans to finance the increase in revenues mainly from extra-profit taxes, but it will also cut ministries' budgets and reschedule public investment. In addition to the current extra taxes, the new extra tax will affect eight sectors. In the banking sector, transaction tax revenue will be increased by HUF 50 billion to HUF 300 billion a year. The insurance sector is expected to raise HUF 50 billion, the energy sector HUF 300 billion, the retail industry HUF 60 billion, the telecoms sector HUF 40 billion, airlines HUF 30 billion and the pharmaceuticals sector HUF 20 billion. From the beginning of next year, the government will also reintroduce the advertising tax, which it expects to raise HUF 15 billion a year. In addition, the government has announced that because of the high level of abuse of the petrol price freeze - petrol costs 480 forints per litre, about half the price in Western European countries - only cars with Hungarian registration plates will be allowed to fill up with petrol at Hungarian pumps at the official price.
The common tax burden has not gone down well with investors, who reacted immediately and violently to the developments. Orbán's announcement weakened the forint - the euro exchange rate fell from 387 to 393 forints - and it is estimated that more than 650 billion forints have "fled" the stock market since the emergency was announced, with the BUX index falling by 3 per cent and then by a further 4.4 per cent the following day.
It is clear from the measures announced and the proportion of money going into the two funds - HUF 700 billion for social and HUF 200 billion for defence - that the Hungarian government did not declare an emergency fearing an escalation of the war, but rather because of the challenge posed by the economic and social consequences of the war. This is nothing new, as the emergency declared two years ago due to the pandemic will be lifted on 1 June.
A state of emergency is a type of special legal order that can be declared by the government, as defined in the Fundamental Law. Whereas previously, a state of emergency could be declared in response to a natural disaster or industrial accident threatening the safety of life and property, and to deal with the consequences, in the future will also be possible in case of an armed conflict, war or humanitarian disaster in a neighbouring country. During an emergency, the government may introduce extraordinary measures as specified in a cardinal law, and issue decrees suspending the application of certain laws, derogate from legal provisions, and take other extraordinary measures as set in a cardinal law. The decrees thus made shall remain in force for fifteen days as a starting point unless the government, acting under the authority of parliament, extends their validity. However, it is important to note that any decree issued by the government in connection with an emergency shall cease to have effect when the emergency ceases to exist. In a special legal order, the exercise of fundamental rights may be suspended or restricted beyond what is proportionate to the need, subject to the exceptions laid down in the Fundamental Law, such as human dignity and the right to life.
It is a government's right and duty to put the national interest above all else and create the regulatory conditions to protect the Hungarian state and its citizens. And in such a time of war, we need a government capable of taking swift and effective decisions to defend itself effectively and efficiently against a war crisis. However, it cannot be overlooked that Viktor Orbán is also attracted to an authoritarian style of government. With a two-thirds majority in parliament behind him, there would be no need to declare such emergencies. Effective governance could be ensured without it, and at most, there would be a debate in parliament on the individual steps to be taken. Orbán does not like this very much and, as usual, goes to the wall when it comes to legal options. This does not break the law, but at most, it breaks the spirit of democracy. However, Orbán is aware that his image among the political elite in the West could not be worse, but societies - not just the Hungarian one - support moves like the one he is making. The prime minister is also well aware that it is not his style that wins elections, but the effectiveness of his governance and the preservation of stability that keeps him winning. Thus, in the current worsening external circumstances, he needs the widest possible room for manoeuvre to preserve social security, which is not at least a question of power for him, and to defend the country, which is a national, even sovereignty issue.
