Gergely Gulyas – Photo: MTI

Gulyas: Government to extend price caps

In view of the war in Ukraine, the government will extend price caps on food and petrol until October 1, and the loan moratorium and cap on mortgage rates until the end of this year, the prime minister's chief of staff said on Friday. Gergely Gulyas told a regular press briefing that later in the year, a decision will be made on whether circumstances justify any further extension.

As the war in Ukriane is driving inflation worldwide, energy prices are soaring and commodity prices are also up, partly due to the sanctions on Russia, Hungary also has to face rising inflation, he said.

“Inflation will subside once peace sets in, and so the most effective tool is not arms transports and the support of the war but brokering peace,” he said.

Under the current circumstances, it is important to rein in inflation in Hungary to counter the effects of global economic trends, and the Hungarian government is making every effort to achieve this by protecting utility price reductions and price caps, he said.

The government has managed to keep a 5-6 percent lid on inflation with these measures, he added.

The government has imposed a 480 forint (EUR 1.2) per litre price cap on fuel for Hungarian motorists, he noted.

Referring to a “letter from Brussels” calling on the government to scrap the latter, Gulyas said Hungary’s government remained committed to protecting the people and the economy from soaring fuel prices.

A similar Italian measure has prompted lawsuits, which the country eventually won, he noted.

Regarding the sanctions on Russia, Gulyas said the government would continue to back only those sanctions which don’t hurt Hungary and Europe more than they hurt Russia, adding that an embargo on Russian gas imports would threaten the entire continent’s gas supply.

The decisions taken by Brussels so far have contributed to the record-high inflation rate, he said, adding that the imposition of a gas embargo would put the energy supply of the whole of Europe at risk.

He called on the European community to return to the sanctions as described in the “consensus reached in Versailles”, which exempted energy resources from the sanctions imposed on Russia as a response to the war in Ukraine.

While “we somehow got over the issue of coal and oil”, further sanctions on gas deliveries would have “extremely negative effects”, he said.

Meanwhile, Gulyas also said the Hungarian government did not support the introduction of a global minimum tax, a position which the finance minister would hold firm on at Friday’s Ecofin meeting. This matter requires a unanimous decision, which cannot be reached without Hungary, he added.

Gulyas said a global minimum tax would force Hungary to double tax burdens on businesses, arguing that they currently pay a rate of 7.5 percent and the global minimum tax rate would be 15 percent. The global minimum tax would cost Hungary its tax advantage in the region and Europe, and place burdens on businesses that would be too heavy even in a normal economic situation, let alone in a time of war, he added.

Gulyas said the economic crisis caused by the war called for economic growth, tax cuts and investment promotion with a view to protecting jobs.

He said the reason why the Hungarian government had originally been in favour of a global minimum tax was because it was supposed to be imposed on tech giants that avoided paying all their taxes. Yet these sort of companies are not included in the current package while all other types of commodity producing companies are, he said.

Gulyas said the “EU is rushing into things again” and would introduce the new tax when it was uncertain that the package would be backed by the US Congress given the upcoming midterm election there. He noted that a Republican-backed organisation that deals with taxation opposes the minimum tax.

In response to a question, Gulyas said the government continued to reject a congestion fee for Budapest motorists, adding that the measure would “make motorists’ life impossible” in the city.

Gulyas accused the Budapest municipality of aiming to “make life impossible for motorists in every other way”, and warned politicians against “handing out lifestyle advice”. Hungarians have a right to live as they like, within the confines of the law, he said.

“Although 21st century Liberalism actively opposes freedom in western Europe, it is not a good discipline to transfer to Hungary,” Gulyas said. The government can only provide incentives, he added.

Responding to questions, Gulyas said an EU embargo on Russian gas would pose difficulties not only to the eastern and central Europen economies but also to the western European ones. “Such a decision would be contrary to common sense.”

Hungary’s government would be capable to maintain the cap on fuel prices as long as supplies are forthcoming, he said. Should the EU’s embargo go through, the “price caps would become untenable overnight”, he said.

While supply chain security has been shaken, fuel shortages “are not impossible but unlikely,” he said. If necessary, Hungary’s strategic reserves can ward off shortages for up to a year, he said.

Hungary has done the most in the EU to diversify its energy supplies in the past 12 years, with interconnectors with five neighbouring countries constructed during that period, Gulyas said. “We will wean the country from Russian oil when it will not bring us, Hungarian families and the economy extra costs,” he said.

Regarding the EU’s sanctions policy, Gulyas noted that Russia’s revenues from raw material exports had already exceeded that in 2021. In the long term, the aggression will curb Russian-European ties and prompt the country to turn towards Asia, forcing Europe to find alternative sources of raw materials, he said .

On Hungary’s veto to add the head of the Russian Orthodox church, Patriarch Kirill, to the sanctions list, Gulyas said that while “the Russian Orthodox church is usually supporting Russian state aims”, the patriarch is “the representative of a church — I would not call a church pro-war”.

Religious leaders should not be cut off from their flock, however small their number in Hungary may be, he said.

Regarding companies’ reactions to the government’s windfall tax, Gulyas said all attempts to push the extra costs onto customers will prompt inspections from the consumer protection authorities. The government anticipates few such cases, as raising the costs for customers may result in losing them in high-competition sectors such as banking, he said.

While air transport companies “have seen easier times than the past few years”, they are still in much better shape than the hospitality industry, which has been “fighting for its life for two years now”. That is why the government is planning no extra profit tax for the latter, he said.

Gulyas also confirmed a statement by Tibor Navracsics, the minister responsible for regional development and the uptake of EU funds, saying that Hungary would be ready to make compromises to access the EU’s Recovery and Resilience Fund (RRF). In line with the European Commission’s objections, Hungary is ready to reduce the rate of single-bidder public procurement procedures to under 15 percent, and is open to all professional criticism lacking political motivation, he said.

The EC is bound by law to reach an agreement with all member states, he said. Meanwhile, the Hungarian opposition is doing everything in its power to hinder Hungary’s access to EU funds, allocated, among other things, to wage increase, he said. Opposition MEPs drawing EU wages to the tune of five million forints (EUR 12,500) are thus obstructing wage increases for teachers and doctors, he said.

Commenting on a ruling party proposal to hold the next local elections simultaneously with the European parliamentary elections, Gulyas said that a single campaign is easier for everyone than two ones and higher voter turnout would also be preferable to all. Considering that both events will take place in two years’ time, there is plenty of time for everyone to prepare, he added.

Commenting on the increase in Prime Minister Viktor Orban’s salary, Gulyas said it had been him who proposed this in order to ensure that Orban’s salary is not less than any of his ministers’.

He also said that a government decision is expected to be published on Friday about the conditions applying for small and medium-sized businesses to benefit from utility fee caps. It will apply to small businesses and will include a consumption threshold, he added. Gulyas said talks were under way with local councils about the compensation they are to receive for losing eligibility for the utility fee caps. Depending on size and revenues, some local councils will get a state contribution to help pay their increased utility fees, he added.

In response to a question on monkeypox, he said the public health centre was in charge of assessing risks which he said were moderate. The government has not been contacted yet by any European Union bodies about vaccine procurement against monkeypox, he added.

Commenting on planned changes in the preferential small business tax kata, he said no decision had been made but the goal is to ensure that only the “traditionally small-income” businesses should benefit from it.

Gulyas said Hungary was participating in joint military exercises with NATO and non-Hungarian NATO soldiers were also protecting Hungary’s eastern borders. However, no decision has been made about units of the military alliance to be stationed in Hungary, he added.

Commenting on the exchange rate of the forint against the euro, he said that since 2010, the forint had been weakening to the euro by less than 1 percent annually and the current weakening is a consequence of the war. The Hungarian currency is weakening almost the same way as other currencies in this region, he added.

In response to a question about a ruling party proposal to withdraw resources from parliamentary groups, he said the government had not discussed the motion but a vote would be held on it in parliament. The proposal aims to ensure that having seven opposition groups out of nine party groups in parliament does not cost extra 4 billion forints, he added. Support for party groups will still remain generous, with more money available after opposition lawmakers than ruling party lawmakers.

Gulyas said the Budapest-Belgrade rail development project was under way, the government would not stop it and it is expected to be completed by 2025.

The planned repurchase of the Liszt Ferenc International Airport will be kept on the agenda but “in the current war situation, it will be much more difficult to get the required funding available”.

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