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Iván Major Utility Price Cuts and Sector-Specific Taxes in Network Industries The petition opened with the question: “Would you like to pay 10 to 20% less for electricity, gas, water consumption, and sewage treatment?” “Of course,” replied millions of Hungarians. “Are you in favor of the government passing on Hungary’s accumulated debt to banks, telecommunications firms, and commercial networks by levying sector-specific taxes instead of reducing debt with your direct contribution, for instance by hiking value added tax on goods and services?” Once again, the reply was a resounding “Yes.” But if the following were added to the petition: “Do you accept that in the wake of the price cuts and sector-specific taxes suppliers will turn a loss and be compelled to cut staff, stall network development projects and, ultimately, reduce the quality of electricity, gas, water supply, etc.?,” it would spark outrage. Likewise, if suppliers added on more and more charges to cover their losses, broad disgruntlement would certainly ensue. These questions and findings are not mere figments of the imagination , but the current reality in Hungary. The utility price cuts undertaken by the Orbán administration in 2012 and carried out in several rounds affected areas ranging from energy to water supply and sewage fees, but also include government measures linked to foreign currency household loans. The most pronounced—and most popular—government price decisions have yielded energy bill cuts. During the fall of 2014, the government announced the “third phase of utility price cuts.” Table 1 summarizes the official data on the completed rounds of price cuts. i6 Maffia II 00 book.indb 311 2016.12.07. 15:47 312 TWENTY-FIVE SIDES OF A POST-COMMUNIST MAFIA STATE Table 1 2013 % 2014 % Total % Savings for the population (HUF billion) Natural gas 20.0 6.5 25.19 139 Electricity 20.0 5.7 24.55 160 District heating 20.0 3.3 22.63 35 Total – – – 334 Source: Hungarian Energy and Public Utility Regulatory Authority, press release, 18 October 2014. The published data reveals that the price cuts resulted in savings of HUF 16,700 per capita per year. This figure, however, does not factor in the other rate adjustments made by suppliers in an effort to offset the negative impact of utility bill cuts. The utility price cut campaigns—and the accompanying government propaganda—are very likely to have substantially contributed to Fidesz’s electoral victories—in parliament, in the European Parliament , and in local elections—in 2014. The Hungarian government credited itself with these price cuts, touting them as a victory against energy suppliers. In reality, falling prices across Europe are what really enabled them, as opposed to the Hungarian government’s efforts. Energy prices fell from Germany to Spain, through Austria and the Czech Republic without any intervention from local governments . The explanation is relatively simple: in recent years, governments have strongly subsidized alternative energy production using alternative energy sources such as solar, wind, and water power. This created a significant energy surplus in European markets. In addition, the upswing in shale gas production in the United States and in northern Europe only added to this surplus. Germany saw periods in 2012–13 when energy producers sold their output at negative prices because they would have been unable to store the accumulated energy reserves.1 With its utility price cuts, the Hungarian government thus interfered with the energy market instead of boosting its efficiency. Facts about Network Sectors and Public Services It is common knowledge that the service sector, including everything from hairdressers to telecommunications, through boutiques and air travel, accounts for 65% to 75% of the workforce in developed economies, and i6 Maffia II 00 book.indb 312 2016.12.07. 15:47 313 Utility Price Cuts and Sector-Specific Taxes in Network Industries these sectors contribute to a similar extent to GDP, and are also on the receiving end of 60% to 70% of economic investments. Services are consumed by businesses, government or municipal institutions and households or individual retail consumers alike. The following section chiefly addresses the consumption of services by households and individual consumers, more specifically the impact of utility bill cuts and sector-specific taxes. A large number of services are organized in networks, which partly stems naturally from the network-like character of their operating infrastructure (such as railways, telecommunications, or energy generation and distribution) and partly from the regional organization of services (such as the banking system and retail networks). These...


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