Fat and Hungary

By bne IntelliNews June 24, 2011

Phil Cain in Graz, Austria -

Hungary is gearing up to impose the world's most comprehensive "junk-food" tax in September in the hope that it will improve people's eating habits and reduce a large deficit in the healthcare budget. But will it really change habits or just raise more money for the cash-strapped state?

The government estimates it will bring in an annual income of HUF20bn ($100m) that it will direct towards healthcare, which is around HUF100bn in deficit. Hungary, with a public debt of 77% of GDP, is among the most severely indebted countries in Central and Eastern Europe.

The tax rates are still to be revealed, but the speculation is that sugary drinks will be taxed at around HUF15 (€0.05) a litre. It is also thought salty snacks could be liable to a tax of around HUF400 a kilogram. Deciding what tariff to apply to fast foods that come in a wide variety, like pizzas or burgers, could be more troublesome, says Godfrey Xuereb, head of the population-based prevention team at the World Health Organisation. The composition of each would have to be calculated for a tax bill to be drawn up.

The bill should "pass easily," predicts Gabor Csiba, president of the Strategic Alliance for Hungarian Hospitals, and the man who came up with the idea. "The government is very forceful and can decide more or less what goes through parliament," confirms Andras Nagy, chairman of Hungarian Heart Association.

The ruling Fidesz, a rightist party that Csiba serves as a councillor, controls two-thirds of parliamentary seats after a landslide election victory in April last year. It has since courted controversy. The legality of a "crisis tax" on foreign retail, telecommunications and energy companies imposed in October is being looked at by the European Commission. EU outrage at a media law at the start of the year were pooh-poohed, as are concerns expressed this week about a rapid rewrite of the constitution.

The tax also has the support of 54% of the population, according to a poll in June by the Nezopont Institute, a think-tank close to Fidesz. It is not clear, though, how much interviewees knew about the tax.

Hitting the poor

However, the move inevitably has its critics. The Hungarian Trade Association argues that any gains made from the new taxes will be outweighed by a fall in VAT receipts as people avoid the newly-taxed products, a view echoed by the accountancy firm BDO Hungary. The association also worries that it will lead to more tax evasion and Hungarians driving over the border to shop more cheaply. International retailers have yet to respond directly, but the CIAA, a European food and drink lobby, says such taxes are "discriminatory" because they target specific types of food and hit people on low incomes hardest.

Health experts like Nagy are having none of it: "As an organisation we welcome it." He has no time for the food industry's contention that fatty, salty or sugary foods are not harmful if eaten in moderation. "The intention of the food industry is to make it more complicated than it is. If you go to a food store, you can basically decide what is healthy and what is not."

Csiba dismisses the idea that the taxes will be too small to change people's eating habits. "The rate of tax is not small because Hungarians' salaries are not high, so people must choose healthy alternatives or the revenue from the tax will be high." Hungarians already spend around 17% of their household income on food, with a sales tax among the highest in the EU. Consumers pay VAT of 25% on most types of food and drink except dairy and bakery products, which have VAT of 12%.

If Hungary goes ahead with the junk food tax, it would be the first of its kind in the world. Romania's health ministry considered a similarly wide-ranging scheme to raise €700m a year, but shelved the idea in March, saying it would be inappropriate at a time when food prices are rising dramatically. It is already normal for Romanians to spend nearly 40% of their household income on food. Only 8% of them are obese, compared with around 20% of Hungarians and about 30% of Americans.

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