bne -

Hungarian Prime Minister Viktor Orban looks to be backpedalling on plans to introduce a controversial internet tax following mass protests and furious reactions from the US and EU. 

Speaking on state radio, the PM said the levy cannot be introduced now in its current form. Instead, he said he plans to launch a public debate on internet regulation next year.

"We are not communists, you need to rule together with the people," Orban said during his weekly spot on Radio Kossuth, according to Czech newspaper Hospardske Noviny.

While the move is clearly a climb down for the powerful ruling party Fidesz, it's worth noting that Orban is well practiced at managing protest and still getting his way. Previous policies hitting the banks and other sectors have been watered down or delayed in the face of opposition from within Hungary and also the EU, but were still pushed through. As bne noted, the introduction of the internet tax appeared to take a similar approach, suggesting a deliberate tactic.

With protests over the plan to tax data traffic building over the last week to the point that over 100,000 were reported on the streets on October 28, the government had already stepped back to pledge the levy would be capped at HUF700 per month for private subscribers and HUF5,000 for companies. 

However, with Hungarians out on the streets, the topic has provoked open season for US and EU criticism of Orban. The West has become increasingly alarmed at the PM's push towards an "illiberal" democracy, as well as Hungary's movement towards Russia and away from EU policy on the Ukraine crisis. 

In recent weeks Hungary's dedication to democracy has been questioned publicly by US President Barack Obama, Hungarian officials have been banned from travel to the US, and Neelie Kroes, the outgoing EU digital commissioner, has openly called for people to join the protests.

Foreign investors operating in Hungary - which have been hit by huge taxes and other costs and complain of unfair competition against local companies with connections to Fidesz - have also raised a level of complaint unusual in Hungary. Previously, the government has been pushing foreign investors into signing "cooperation" deals.

The telecoms are on the frontline. Deutsche Telekom, which owns the biggest mobile operator Magyar Telekom, has blasted the planned tax. Vodafone joined it on October 30, saying the way the tax is drafted in the current form would unfairly hit it more than others, and work to reduce the country's competitiveness.

Yet, while many will see Orban's announcement as a sign of concern, the PM is under little direct pressure.  In the absence of viable opposition, and driven by populist policy, Fidesz has won landslides at three elections this year alone. It now has a clear run to 2018. 

Instead, Orban's track record suggests he will pull back for the moment, gather his forces, and push through anyway. It's a pattern seen many times since he came to power in 2010 in spats with the EU and the banks especially. At the same time, the level of pressure is unprecedented, meaning some unrest within the ranks of Fidesz would not be surprising.