Hungary government gambles with business

By bne IntelliNews October 5, 2012

Kester Eddy in Budapest -

The Hungarian government's capricious policy-making has once again put it on a collision course with the rest of Europe, with Hungarian slot-machine owners gaining support from Euromat, the European Gaming and Amusement Federation, in their fight against the government's sudden move October 1 to ban slot machines in all but three state-concessioned casinos.

The Brussels-based lobby group, in a letter to the European Commission on October 4, denounced the move by Budapest as "anti-competitive," and "against the private sector to the direct benefit of its state-owned casinos."

It also argues that the Hungarian government had circumvented Commission "standstill" regulations designed to allow for proper consultations with the industry on false grounds. "In order to bypass the three-month standstill period... the Hungarian Government has invoked the provision which allows for a waiver of the standstill period in the case of the national measure being of a fiscal nature. This is not a fiscal measure but rather a protectionist move in favour a particular sub-sector of the gambling sector dressed up as a fiscal instrument," Euromat stated in its appeal to the Commission.

While the Euromat move may add to the long-term pressure on the government of Viktor Orban - which has gained notoriety in the business sector for its unpredictability - it is unlikely to change things on the ground for members of the Hungarian Gaming Association (HGA), who were faced with an abrupt fait accompli this week.

Russian roulette

After an unscheduled cabinet meeting on October 1, the government announced it was banning slot machines, with parliament passing the legislation 24 hours later via a fast-track procedure. Janos Lazar, head of the Prime Minister's Office, denounced one-armed bandits as "immoral, unacceptable" and "against our core beliefs", claiming they tempt many poor families into bankruptcy.

The gaming association was equally emotional in response. "This affects 1,200 gambling halls and up to 18,000 bars and restaurants with slot-machines, putting 40,000 jobs at risk," István Schreiber, HGA president, tells bne, adding via a written statement: "We sadly experience that the Hungarian Government can abolish a whole sector with obscure reasoning, by the stroke of a pen."

The industry, which had restructured in the wake of a five-fold increase in the special tax on slot-machines - raised from €360 to €1,440 per month from last November - paid HUF70bn (€245m) into the budget last year, Schreiber said. Most, if not all of this, would be lost to the state.

The government played down the HGA claims, estimating the loss to state revenues at between HUF20bn-30bn, which could be recovered from other gaming taxes, and emphasising the social damage caused by the industry. "According to the Ministry of National Economy, there are 4,520 slot machines registered in Hungary, most of which are in catering units and serve only as supplementary service. The [HGA claims] would mean that one machine gives jobs to nearly 10 people! On the contrary the reality is that one slot machine can ruin the lives of at least 10 families," a spokesperson tells bne.

But the government also hinted at another reason for the Blitzkrieg legislation - an alleged security threat from criminal gangs that control large segments of the gaming industry through links to highly placed state officials, which the daily Nepszabadsag reported on October 4.

While the government declined to comment on the story, the HGA described the allegations as "manufactured"."This is... the most regulated and controlled industry [of all]. The NAV [tax authority] Gaming Control Head Department carries out 15,000 checks annually on the slot machine sector; they found an offense in only 0.3% of all [cases]. This data would do credit to any industry," the HGA said in a statement.

But the left-leaning Nepszabadsag, which is typically critical of the Orban regime, praised the move in an editorial, saying it was wise to "consider the future of the health, social and personal costs" when assessing the merits of slot machines.

Although Schreiber hinted that government-friendly "business interests" might be behind the move, given the lack of transparency surrounding the affair analysts could only speculate on the unspoken causes for such rapid government action. "The allegations that some government politicians could be corrupted by the gambling sector, hence the 'national security threat' - who knows? But it's a bit hard to imagine how slot machines pose a deep national security threat to the country," says Peter Kreko, of Political Capital, a Budapest think-tank.

But the move is in line with the government's strong "law and order" rhetoric about closing shady businesses, and about solving problems quickly and efficiently, he said.

In the end, though, it can be chalked down to another example of the many hastily drafted, ill-thought out laws that have been a feature of the Orban government's first two years in office. "For sure, it is a policy failure," says Kreko. "Originally, they wanted huge revenue from this sector, and at the end of the day, they are having to realise a loss."

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