Multinational retailers in Hungary may be bracing for a tough period after former Prime Minister’s Office leader Janos Lazar argued that Hungary should pursue an openly protectionist policy to crowd out multinational retailers. Hungary has already reintroduced a progressive sectoral tax hitting larger companies, while sparing local retailers operating with franchise models.

Agriculture is one sector of the economy that has not benefited from regime change or accession to the European Union, Lazar said at an online agricultural conference organised by Portolio business website on December 4.

Despite funding coming from the EU during the last two seven-year budgets, agriculture is lagging behind. "We are a country that exports raw materials and imports finished products," said Lazar. 

The next EU budget cycle is Hungary's last chance to be a self-sufficient country with strong food industry, he argued. Over the next 7+2 years, thousands of billions of forints will have to be made available for agriculture, he added. Hungary should follow the examples of Poland and Slovakia, which have a higher share of processed food made locally.

Lazar said that it would be in the national interest of Hungary to dominate this market.

In numbers this would mean boosting the share of the Hungarian-owned processing industry and domestically produced food consumption to 80% each, leading to an 80% share in contribution of the sector by local producers.

Foreign retailers under pressure

Earlier this year, the Court of Justice of the European Union (CJEU) ruled that Hungary’s progressive sectoral tax on retailers in Hungary is compatible with European Union rules. A few weeks later Hungary’s parliament approved a turnover-based tax for companies. The tax exemption applies only for annual revenue of HUF500mn (€1.38mn), or less. 

Due to its progressive nature, the windfall tax is targeted at multinational firms while local retailers (CBA, COOP) operating with a franchise model would be spared from the heavy burden.

The rate for turnover between HUF500bn and HUF30bn is 0.1%, between HUF30bn and HUF100bn is 0.4% and over HUF100bn turnover the tax rate is 2.5%.

The Orban government introduced windfall taxes for retailers in 2010 but was forced to withdraw it three years later after an infringement procedure by the EU. The case was brought to the EU court, which ruled in favour of Hungary. Of the top ten retailers, only two are Hungarian-owned. The last few years had seen a surge of hard-discount chains. Aldi, Lidl and Penny had pursued an aggressive strategy in building up their market share.

German hard discount chain Lidl became the second-largest player in 2019 with a whopping 25% y/y increase in revenue to HUF685bn, which ranked it second behind market leader Tesco. According to the annual compilation of the 11 largest FMCG retailers by Trademagazin, the UK-retailer retained its leading position with HUF740bn in sales last year down 2.8% from 2018.

Tesco had 112 hypermarkets, 35 supermarkets and 55 convenience stores in Hungary. Spar saw its sales rise 10% to HUF680bn. The two largest local retailers COOP and CBA were ranked fourth and fifth with annual turnover of HUF643bn and HUF538bn respectively, a modest 2.6 and 2.1% annual growth.

Analysts said that squeezing out multinationals would not solve efficiency problems faced by Hungarian retail chains. Employers would also feel the impact of a possible ownership change and possibly not to their advantage, a trade union leader said.

Lazar, a once-powerful member of the Orban government, has stepped back from national politics in 2018 after his unexpected loss at a mayoral by-election in his hometown of Hodmezovasarhely. He won his district in the 2018 parliamentary election. For a long time Lazar portrayed the image of being the "nice guy" of Fidesz, willing to accept criticism and ready for a compromise.

In rhetoric, he occasionally unleashed criticism of the government’s policies. He was appointed by Orban as commissioner for protecting non-smokers and earlier this year he was picked to lead the Hungarian Tennis Federation after a corruption scandal. 

With such proposals many analysts say that Lazar is pursuing an ambition to make a comeback to national politics before the 2022 elections.