Thomas White Global Investing
Hungary
Hungary Stamp
July 8, 2011
A Postcard from Europe
Hungary: Fat tax to beef up healthcare budget, make citizens leaner

Hungarian butter

Hungarian butter will become costlier after the government enforces the “hamburger tax.

For the hungry in Hungary, grabbing a bag of chips on the go will no longer be the cheapest option. And neither will be buying cookies, chocolates, ice creams, sweets, or cakes for that matter. The Hungarian government is creating a law to enforce a junk-food tax or “fat tax,” which it believes will discourage citizens from eating unhealthy food, and at the same time, generate funds for its healthcare initiatives.

The concept of a fat tax is neither unique nor unusual. In fact, in early June this year, the city of Buenos Aires, Argentina, made it illegal for salt shakers to be kept on restaurant tables unless diners specially asked for them. Other food-related taxes have been discussed by several countries, including the U.K., but have been abandoned in a half-baked condition. Some U.S. states, for instance, levy a small tax on soft drinks and at least three states in the country have implemented fat taxes, only to repeal them later.

However, Hungary takes the cake for attempting to levy what is believed to be the world’s most comprehensive fat tax. The bill for the tax, which the government will propose to the Hungarian parliament soon and whose passage is widely anticipated due to the ruling party’s numerical strength, advocates a tax on all foodstuffs with high salt, sugar, carbohydrate, and caffeine content. The manufacturers of junk food, not consumers, will be taxed, but manufacturers will most likely pass on the additional costs to consumers. According to the Wall Street Journal, the bill recommends “a tax of 300 forints ($1.63) for a liter of energy drinks, 400 forints ($2.16) for a kilogram of chips, 100 forints ($0.54) for a kilogram of ice cream, and 500 forints ($2.71) for a kilogram of instant soups and sauces. Sodas will be taxed 10 forints ($0.05) a liter.”

Compared with the average salary of Hungarians, the tax rates are not small; more so since Hungarians spend 17% of their monthly income on food or double the amount Americans spend on food as a percentage of their average monthly income. Further, Hungary has one of the highest rates of sales tax in the European Union (EU). Therefore, it is easy to believe Gabor Csiba, a member of Hungary’s ruling party and author of the bill, when he says that the rise in prices of certain foodstuffs due to the fat tax will surely force Hungarians to change their food habits.

Nonetheless, critics of the government believe that the “hamburger tax”, as it has become to be known, is a clever way of generating much-needed revenues without angering citizens. Hungary is one of the most indebted countries in Eastern Europe and its budget deficit is 77% of its GDP. Indeed, the projected annual revenue of 30 billion forint ($160 million) to be generated by the fat tax may have been a strong incentive for the government. Another curious factor strengthens the argument that additional revenues were the primary motive behind the fat tax.

It seems that although the tax has been nicknamed “the hamburger tax”, it will strangely not apply to a hamburger because only pre-packaged foodstuffs are supposed to come under its ambit. Thus, the popular Hungarian junk food lángos, the deep-fried flat bread made of potato dough and topped with garlic, sour cream, or cheese, as well as several other categories of unhealthy local food, will likely escape the tax.

These arguments notwithstanding, it will suffice now to say that the proof of the pudding is in the eating. Whether the hamburger tax will make Hungarians leaner in the future is anybody’s guess, but the government’s budget will surely be healthier next year.

 

Image Credit: Hungarian Snow under Creative Commons license

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