Every little helps

By T.E. | BUDAPEST

IT'S taken a while, but on Tuesday we learned how Hungary's government plans to finance its way through the next few years. Ever since the country decided it could do without IMF and EU support three months ago, analysts have been wondering how Viktor Orbán, the prime minister, intended to meet the tight budget-deficit targets markets demand while fulfilling campaign promises to cut income tax and get his country growing again.

His answer, it turns out, is to impose “crisis taxes” for up to three years on primarily foreign-owned energy, telecommunications and retail companies, divert pension-fund contributions into state coffers and renegotiate all ongoing public-private partnership (PPP) contracts. On top of this, in an attempt to raise the shrinking population's fertility rate, the government will introduce a tax break for families with children. (There was no word on the swingeing public spending cuts that have been widely leaked, but that may come in another speech, scheduled for Monday.)

Announcing the new taxes, which should bring in an additional 520 billion forints ($2.67 billion) over the course of next year, Mr Orbán said: “For many long years we have been asking those without profits to pay more and more. Now it's time for those with profit to give more. After the bank tax, we'll introduce further crisis taxes... for a period of three years, in order not to hurt the poorest.”

The government intends to raise Ft61 billion forints from the telecoms sector, Ft70 billion from energy companies, and Ft 30billion from retailers. The new windfall taxes, which follow an already-announced annual Ft200bn bank tax, will attract the most attention. If nothing else, they show that Mr Orbán, whose populist conservative Fidesz party came to office six months ago, is not shy of treading on foreign toes.

While the bank tax upset Austrian and Italian banks and their governments, this new round of taxes spreads the pain across Europe. The telecoms tax hits the UK's Vodafone, Norway's Telenor and Germany's Deutsche Telekom. The energy tax will hit France's GDF and Germany's E.On, while retail giants like the UK's Tesco and France's Auchan will doubtless be voicing their own concerns.

The effect of the PPP freeze is less clear, though the Austrian constructor Strabag archly noted that it was sure the Hungarian state would meet its contractual obligations, “as we have always met ours.”

The real kicker is the Ft360 billion a year government will net by ensuring that private pension contributions, until now channelled through the social-security system, stay with the taxman. It could get even more money by a new rule that will allow existing savers to opt back into the state pension system—if they hand over their pension savings to the state.

That will earn the government money now. The bill will fall on a future government when current savers retire. But, as Mr Orbán said, “Hungary is missing a million jobs and a milion children. If we had all of that, then Hungary's economic troubles could be solved without any great strife.”

Hence the promises of a simplified income-tax system, with discounts of up to Ft100,000 a month for families with three children. Yet these children won't be contributing to Hungary's growth or fiscal stability before 2030 at the earliest, and, as the crisis tax shows, Hungary needs the money now.

Investors are already complaining of the difficulties of doing business in an environment where they are subject to surprise taxes and micro-regulation. While profitable, the latest round of windfall tax targets are also some of Hungary's largest employers. Tesco alone employs some 30,000.

Such politically well-connected foreign companies will certainly be turning to their own governments and to Brussels, who will ask whether the IMF's conditions were really onerous enough to merit this all-or-nothing strategy.