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.