A really big fiscal adjustment, Robin-Hood-type of extraordinary taxes, populist-sounding communication and a much weaker forint

HUNGARY - In Brief 26 May 2022 by Istvan Racz

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It took only a few minutes after the release of our monthly report yesterday that PM Orbán announced a series of new extraordinary taxes, imposed on sectors that, according to the judgement of the government of Hungary, make ’extra profits’. These are: banking, insurance, large-scale wholesale/retail trade, energy, telecom and airlines. As clarified today, this year’s total of the proceeds from this source would reach HUF800bn or 1.4% of GDP.’Extra profits’ sounds a bit like a marxist term, but it has a place in contemporary economics as well. E.g. if a company from a high-cost developed economy pays lower wages to those it employs in a developing economy than at home, even after adjustment for productivity differences, then it makes an extra profit compared to conditions in its homeland economy. Of course, this phenomenon represents a key reason for FDI activity.However, the reader can be assured that this time around the reference to ’extra profits’ is more of a political term. Extra taxes will be imposed on sectors which the government believes are relatively highly profitable and are in the position to pay the extra burden in the given circumstances. This is not to say that the government’s judgement is right or wrong. We only want to make the point that the government is looking for ways to fix its budget and it simply takes income away from where it can do so.It is a beneficial side-effect for the government’s point of view that the term ’extra profits’ goes down well in the popular explanation of economic policy. Much in the same direction, foreign minister Szíjjártó, who is also responsible for foreign investment in Hungary, said this morning that those enterpr...