Important announcements by the Hungarian government: price cap, EU funds, Extra profit tax, Ukraine and more – UPDATE

The government has adopted an economy protection action plan introducing a price cap on electricity in certain economic sectors, expanding the applicability of the SZEP voucher system and easing the tax burdens on the pharmaceutical industry, the head of the Prime Minister’s Office said on Monday.

New price cap

From July 1, the government is introducing a 200 euro/MW price cap on electricity used by facilities in the manufacturing industry, accommodations, and warehousing and transport, Gergely Gulyás told a press briefing.

Gulyás said the sectors supported were the ones with the “greatest impact on the economy’s performance and inflation”, as they are directly or indirectly involved in production.

“In exchange, the government expects those companies to increase production capacity and not to raise prices this year,” Gulyás said, adding that the Hungarian Chamber of Commerce and Industry would supervise compliance.

The measure impacts over 5,000 companies and has a budgetary cost of 40 billion forints (EUR 107m), he said.

The measure comes after a year when skyrocketing electricity prices prompted 81 percent of Hungarian companies to sign fixed-price energy constracts, with an average price over 250 euros/MW, he said. One third of them pays prices exceeding 320 euros/MW, he said.

The government has consulted with the Chamber of Commerce and decided to protect companies from skyrocketing electricity prices that have been weakening Hungary’s economy as a result of the war in Ukraine, Gulyás said. The government continues to work for boosting the economy and preserve jobs and economic growth, partly because they are the foundation of the resources for next year’s budget, he said.

SZÉP cards

Further, the government has decided to expand the SZÉP cards voucher system, a widely used benefit for employees, to also apply to food purchases in supermarkets, he said.

From August 1 until the end of the year, the government will allow SZEP voucher card balances to be used for purchases of food in supermarkets without restrictions, Gulyás said. It will also raise the annual threshold for employer SZÉP card top-ups with tax preferences from 450,000 forints (EUR 1,200) by a further 200,000 forints, he added.

The government decided to allow companies distributing pharmaceutical products to write off up to half of their 40 percent windfall profit tax with spending on investments or research and development from July 1, he said. The windfall tax for pharmaceutical manufacturers will be halved, and 50 percent of the remaining tax can be written off if spent on R +D, he said.

Support for such an innovative and competitive market will prop up Hungary’s economy as well as the companies in question, serving fiscal stability and R + D simultaneously, he said.

Effects of the war

On another topic, Gulyás said Hungary continued to call for a ceasefire and peace in Ukraine and would stand up for that position in all forums.

The conflict has entered a new phase, with an increasing number of people dying in the battlefield, Gergely Gulyás said.

Besides a national interest of Hungary, it is also in the international interest to restore peace as soon as possible, Gulyás said. “Only peace can end the bloodshed”, and Hungary must stick to demanding immediate ceasefire and peace talks, he added.

If Hungary, a member of the European economy, could free itself “from the suffocating embrace of the effects of the war”, it would immediately result in a significant drop and “practically the end” of inflation, he said.

World politics is showing “worrying” developments, “we are at a point where two nuclear powers do not see the use of ammunition containing Uranium exaggerated,” he warned.

A dangerous escalation has started, he said.

Hungary has been much criticised for its “openly pro-peace stance” in the EU, Gulyás said. Many “would prefer to silence the Hungarian viewpoint,” he said. While the European political elite is united in its view on the conflict, “European societies are not”, he said.

Hungary will continue to stand by its pro-peace views, which the government also sees as the morally correct one, he said.

“Defence budget”

Gulyás said it was vital for the country to have a budget approved by parliament for 2024. The budget will earmark sufficient resources to ensure that Hungary can meet spending obligations made as a member of NATO for the first time since the country’s changeover to democracy, Gulyás said, noting that defence spending next year will make up 2 percent of the country’s GDP.

He said “it helps the country best” if people keep their savings in state bonds or treasury bills that are tax-free and pay high interest. A tax levied on bank savings will apply while the war is ongoing, said Gulyás.

Answering a question, Gulyás said that pharmaceutical companies will not be required to pay half of the 30 billion forints generated in extra profit into central coffers, on the condition that they spend the money on research and development.

Asked about the option of setting a cap on gas prices, Gulyás said the difference in gas prices compared with average EU prices was minimal. Since most contracts will expire at the end of October, businesses can then decide whether to accept actual market prices or choose to conclude new contracts with conditions that, based on current trade exchange prices, are much more favourable than a year before.

Mandatory resettlement quotas for asylum seekers

Meanwhile, Gulyás said the European Union’s decision on mandatory resettlement quotas for asylum seekers was “unacceptable and dangerous”, and an “abuse of power” that Hungary must stand up against in all forums with every means at its disposal.

Gulyás called the European Council’s negotiating position on the regulation of migration and asylum seekers, adopted on June 8, “an invitation for everyone striving to migrate to Europe”.

“This regulation would be harmful to Hungary in multiple respects,” he said. While the position currently proposes the resettlement of 30,000 migrants, it also gives the European Commission the right to raise that number, Gulyás said. Answering a question, he added that the task of carrying out 28 percent of asylum procedures would put a “disproportionate and extremely heavy burden” on Hungary.

He said the adoption of the position “broke an earlier promise”, a consensus reached recently by EU heads of state and government on addressing the resettlement quota issue at an EU Council meeting. Gulyás said a “trialogue” with the European Parliament joining would “probably not help the situation at all because there is no other institution in the world as pro-migration as the EP.”

Gulyás said that once the related directive is adopted, not only the EU’s court but Hungary’s Constitutional Court may play a role in examining whether the EU was exercising powers not legally assigned to it.

“The ball is in Brussels’ court”

Concerning Hungary’s access to European Union funding, Gulyás said “the ball is in Brussels’ court”. He said it was now up to the European Commission to make a “political decision” on whether or not to “take on the conflict with the European Parliament” and grant Hungary access to the monies it is entitled to. He said the issue was a political rather than a legal one. “It isn’t up to us: it depends on when [the EC] drums up the courage to face the European Parliament, where [opposition] Hungarian MEPs have riled up the majority,” he added.

Gulyás said the EC had already certified Hungary’s completion of its final “milestone”, and the country will be able to send invoices to the European Union from early July, he said. “They’ll then have 90 days to decide whether or not to pay,” he said. “Hungarian left-wing MEP who earn 6 million forints in their pocket, paid by Brussels, are doing everything in their power to prevent Hungary from receiving the funding it is entitled to, money that could pay for Hungarian teachers to receive a pay rise and Hungarian health care to gets additional funds.”

Demonstrations, “revenge law”

He said leftist parties and trade unions that spearheaded recent demonstrations were blocking that process, and he slammed opposition lawmakers for speaking in parliament without knowledge of the proposal, saying they had made unfounded accusations. Under the proposal, teachers’ career paths would contain 10 weeks of holidays and 24 mandatory lessons a week, he said.

Gulyás said the government did not expect there to be a mass exodus from the profession in the wake of the new law. While the number of children in public education declined by 13 percent recently, that of teachers only fell by 3 percent, he said, insisting that the “silent majority” regarded the legislation as fair. The proposal was preceded by extensive consultations, including with the European Commission, he added.

Hungary will “sooner or later” receive the EU funding necessary to raise teachers’ wages, “but there is only a 50 percent chance of that happening this year,” he said.

Commenting on teachers’ union PDSZ turning to the European Union over the issue, Gulyás said the move was “irrelevant” as public education was in the hands of the member states. “PDSZ has become an ally of leftist parties … it barely has any members and it represents its own political views,” he said.

The plan to raise teachers’ wages to 800,000 forints (EUR 2,140) on average in the next 18 months was “a cause that stands above party politics”, he said. He pledged to “make that serious and historic move even if leftist parties continue to block the flow of EU monies to Hungary” — albeit at a slower pace than if the EU funding were forthcoming.

Parliament will vote on the proposal by July 7, the end of an extraordinary session devoted to the matter, he said.

Ukraine: war prisoner, Orbán and the new ambassador

Regarding a group of Transcarpathian Hungarians who had fought in the Russia-Ukraine war and were taken prisoners by Russia before being transported to Hungary, Gulyás said that under international law POWs could be transported to any country they wished to go to, and that Hungary had no obligation to notify Ukraine of such a transaction. Meanwhile, the Hungarian government let Ukraine know about the prisoners after they arrived, he added.

Gulyás noted that the soldiers were freed while still on Russian soil. They were aided by the Russian Orthodox Church as free men in travelling to Hungary according to their own will, he said. Hungary then notified Ukraine “to avoid misunderstandings”, even though they had no such obligation, he said. In the meantime, the soldiers with no Hungarian citizenship have received refugee status, he added.

Regarding the possibility of Prime Minister Viktor Orbán travelling to Kyiv, Gulyás said prime ministerial talks were warranted only “if there is a chance of achieving significant steps forward”. “Once this makes sense, of course we stand ready,” he said.

Put to him that President Katalin Novák has yet to sign the Ukrainian ambassador’s credentials, which she received months ago, Gulyás said:

“Ukraine’s behaviour with Hungary and Hungarians does not warrant an expedited procedure.”

Asked whether accepting Ukrainian refugees would exempt countries from the EU’s mandatory resettlement quotas to a certain extent, Gulyas said the matter was being discussed, “but the regulation has not been finalised yet”. “We don’t even know if the war will still be raging by the time the regulation is passed…” he said.

Guylas said the war would come to an end only when the parties — Russia on one side and the US and Ukraine on the other — were willing to negotiate. Chances of that happening in the coming months were slim, he added.