Tim Gosling in Prague -
Thousands rallied in Budapest on October 26 to protest against government plans to introduce the world's first internet tax. But despite clear backing from the West, the opponents of the levy will struggle to fair any better than the industry giants and EU officials that have tried to block Hungary's other special taxes.
Around 10,000 rallied in the capital to protest the move, which Prime Minister Viktor Orban's government says is needed to complement the special tax it implemented on the telecommunications sector in 2011. Budapest says the charge to internet service providers is a natural extension on the levy on phone calls and SMS, because the internet is increasingly used for such communications.
Critics insist that it is another move against democracy as well as foreign investors. They also complain that it will slow internet use, investment in new networks and technology, and the wider e-economy in Hungary. However, the numbers out on the street were disappointing for organizers that had hoped to see up to 40,000.
Parliament is due to start debating the bill this week. Earlier anger over the plan has the ruling Fidesz party pledging an amendment to cap the tax at HUF700 (€2.27) per month for an individual user. Telecom companies paid HUF42bn under the sector levy, which charges HUF2 per minute or per text message, in the first nine months of 2014, reports Bloomberg. The government says it hopes to see revenue of around HUF25bn from the internet tax.
“They’re shooting the economy in the foot with this measure,” organizer Balazs Gulyas told the crowds. “We won’t pay the tax to a corrupt tax authority, for those that steal taxpayer money.”
Sharing the burden
Like the banks and utilities, which were also dominated by foreign investors until the state began an acquisitions drive to buy out the utilities in late 2012, Hungarian telecom firms have been paying large special taxes since Orban came to power in 2010. In late summer, a tax on advertising was introduced. That raised additional concern over media freedom, which critics claim Fidesz has attacked throughout its time in office.
While the government insists it is such burden sharing that has formed the base for the country's relatively strong economic recovery over the past 12 months, analysts worry that growth is being driven almost exclusively by the government and central bank. There is concern that in the mid-term the economy will struggle without investment and bank lending, which is stagnant due to Budapest's erratic policy.
First announced on October 21, the internet tax has not only rattled opponents of Orban's push to create an "illiberal" democracy, but also companies and analysts. "The drastic level of planned tax, up to HUF100bn forints per year, threatens to undermine Hungarian broadband developments and a state-of-the-art digital economy and society built on it," leading telecoms group Magyar Telekom told Reuters.
Analysts agree that the move is more bad news for the unit owned by German giant Deutsche Telekom, as well as the country's other major mobile operators, controlled by Telenor and Vodafone. "The news is negative for the stock, as the new tax could shave at least HUF 7bn from Magyar Telekom's HUF 36bn recurring [free cash flow]," VTB Capital wrote on October 23.
The EU and US will hardly be any happier with the planned tax on the internet, which is seen as a key battleground for democracy. Yet while Orban has consistently bickered with Brussels, in recent months he appears ready for full confrontation.
The issues are spreading across all areas of relations. On October 23, Budapest announced it is to bring criminal charges against NGOs funded by Norway and Iceland. The case against the NGOs is seen as symbolic of the "intimidation of civil society," in Hungary, as US President Obama termed it recently.
And a scandal erupted in mid-October when Washington announced it had banned six Hungarian government officials from entering the US due to corruption concerns. It is the only reported instance of a travel ban placed on a Nato ally.
Meanwhile, EU officials and parliamentarians have raised their level of concern over the state of democracy in Hungary under Orban. Budapest's candidate to the new European Commission was rejected earlier this month because of concern over his role in introducing controversial changes to judicial, media and human rights legislation at home.
Regarding the protests against the internet tax, the EU's top official for digital matters even urged people to join the demonstration via Twitter, according to Portfolio.hu. Neelie Kroes also told the Financial Times the policy will hurt Hungary's digital economy, observing that the country has a below EU-average score its internet usage, broadband access and online regulation. "Unilateral internet taxes are not a clever idea," she said. "It will increase internet access prices for consumers. This isn't going to help."
However, Orban has turned criticism from outside Hungary into a foundation of his strong mandate at home. With the extreme nationalist Jobbik party now the biggest opposition party, even if it trails significantly, the PM now appears happy to go toe to toe with the West.
Political analysts suggest 10,000 in the streets over a single issue is likely little threat to Fidesz. The party has won three elections this year by a landslide, including a general election in April at which it was handed a constitutional majority for a second term running.
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