New infringement procedures: “pálinka” and big box stores

The European Commission most likely waited until the election was over before handing down some bad news to the Hungarian government. The first to reach Budapest was a court ruling on the issue of tax-free “pálinka,” a powerful alcoholic drink made out of various kinds of fruit. The Orbán government’s decision to allow country folk to produce tax-free home brew from fruit grown on their own land came early. It was one of the twenty-two proposals presented by Viktor Orbán to solve the “economic crisis,” and it went into effect on July 1, 2010 despite warnings that it was in contravention of EU law. The announcement that home-distilled pálinka would no longer be taxed was described as the pinnacle of ninety years of struggle for liberation against the backdrop of the tyranny of the state. The “tyranny” referred to was the sensible regulation that owners of orchards who wanted to distill pálinka had to take their fruit to a state distillery and pay tax on the product.

This hasty decision to please Fidesz’s rural voters had all sorts of negative effects. First of all, since these amateur distillers can produce up to 50 liters of pálinka a year without paying taxes, the Hungarian state nowadays receives considerably less revenue from excise taxes on liquor. Second, the professional pálinka producers worried about the hard-won fame of good pálinka, which is considered by the European Union a “hungaricum” and is highly regulated. It must be made from fruits or herbs indigenous to the Carpathian Basin and grown in Hungary. It must be produced and bottled in Hungary, and its alcohol content must be between 37.5% and 86% ABV (alcohol by volume).

To make a long story short, a few days ago the European Court of Justice handed down its ruling: Hungarian home brewers must pay taxes on their products even if they produce no more than 50 liters a year. The reaction? The typical Fidesz one. Instead of telling Brussels’ real objections, they lie and claim that “the bureaucrats in Brussels want to abolish the national heritage of pálinka distillation which is a hungaricum.” Sándor Fazekas, minister of agriculture, called the court’s decision a provocation.

As long as the Hungarian government distorts the rulings of the European Court of Justice we shouldn’t be surprised if the ordinary Hungarian farmer in the countryside accuses the European Union of interfering with the values and traditions of their nation and if he develops a hatred of all those anti-Hungarian foreign bureaucrats. But I guess this is the purpose of the government rhetoric.

The second infringement procedure is about the “plaza stop.”  This particular infringement procedure hasn’t yet ended up at the European Court of Justice and it may never land there because of the extreme slowness of EU bureaucracy. For some background on this particular piece of legislation I suggest reading an old post of mine from November 2011. It started as an LMP draft bill and was then taken up and completely rewritten (and distorted) by the government party. The bill stated that between January 1, 2012 and December 31, 2014 no establishments greater than  300 m2 (3,230 ft2) can be built. Real estate developers protested, not without reason. Moreover, the law inflicted economic pain on the country. Hungary was in the midst of an economic crisis in which unemployment was high and the construction industry had almost collapsed. At that time there were at least five such retail outlets in the planning stages. All work on the construction had to be stopped.

Today the European Commission launched an infringement procedure against Hungary over the country’s ban on the construction of “hypermarkets” as it may be against the competition rule applicable in the territory of the European Union. The reaction? The usual Fidesz demagoguery. “The European Commission once again put the interests of large multinational companies before that of the small Hungarian businesses.”

Hyper market

But who is going to defend the Hungarian consumer from the higher prices which are inevitable in smaller retail stores? And what about the variety of goods that only large establishments can offer?  Small, individually owned stores can never compete with chains on price or availability. I know all the arguments pro and con on this sensitive issue, but the fact is that forcibly stopping economic developments that seem inevitable is not good for anyone, including the consumer.

Retail is always changing. Think, for instance, of the mail order catalogs of businesses like Montgomery Ward and Sears that not only revolutionized nineteenth-century retail but also improved the lives of the rural poor and the segregated blacks in the South. That was in the 1870-1880s. Today online companies like Amazon have disrupted retail yet again.

Yes, big box stores tend to squeeze out small retailers just as mail order catalogs were hard on ma and pa stores in the nineteenth century. But this is how modern economies function. The state’s role is not to forbid the normal flow of goods and services but to regulate their activities.

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LwiiH
Guest

I wouldn’t be unhappy to see more pressure on CBA.. it’s a dreadful and expensive place to shop! With shopping on the web being easier these days it’s putting pressure on the big box stores ability to survive. Most websites no longer need credit cards for purchases. In fact there are a number of sites across Europe that are contained to domestic sales that have caused eBay to retreat.

James Atkins
Guest

Crumbs! I can’t believe it but I think I fully support Fidesz in these two.

It is a nonsense regulating traditional palinka making. A local traditional food economy safe from the tax man and the health and safety morons is a jolly good thing.

And if you recognise the damage done to social capital by the construction of hypermarkets esp out of town ones, then a stop on big retail is good news. The concentration of wealth in the hands of Mr Tesco and Mr Asda might appeal to theoretical economists but it sure screws up a provincial town. Preferring efficiency to social coherence is not an evidently wise thing.

tappanch
Guest

Sanoma is selling Sanoma Media Budapest to Centrál Group

https://www.sanoma.com/en/news/sanoma-selling-its-hungarian-media-operations

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web sites: CitroMail.hu, Hír24, Nők Lapja Café, Profession.hu, Startlap, Szállás.hu, Jobmonitor

gdfxx
Guest

James Atkins :
Crumbs! I can’t believe it but I think I fully support Fidesz in these two.
It is a nonsense regulating traditional palinka making. A local traditional food economy safe from the tax man and the health and safety morons is a jolly good thing.
And if you recognise the damage done to social capital by the construction of hypermarkets esp out of town ones, then a stop on big retail is good news. The concentration of wealth in the hands of Mr Tesco and Mr Asda might appeal to theoretical economists but it sure screws up a provincial town. Preferring efficiency to social coherence is not an evidently wise thing.

Right. This whole modernization thing should have been blocked when those nasty automobiles started replacing the horse buggy. Imagine all the social capital that was destroyed. Not to speak about the Reformation, that forced parts of the society to meet in two and then many more churches instead of just one, destroying the social coherence of the time.

An
Guest
Of course, we can get into philosophical argument whether small businesses need to be protected over large hypermarkets by such laws… but that would be really missing the point. Fidesz does not care about protecting either small or big businesses… first and foremost they are interested in protecting and advancing the interests of those businesses that are part of the inner-circle Fidesz mob, and second,maybe protecting those businesses that politically support Fidesz. They may come up with a good sounding justifications to sell their idea to the public, as if they were protecting something “valuable,” such a small businesses over big ones, or Hungarian ones over foreign owned ones, but the real motive is always pure power- and money-grab. And the goal with this legislation was just the same. Limit the spread of plazas and hypermarkets which are usually foreign owned and have no ties to Fidesz, Cause damage to those projects that were already underway, owned by businesses not related to Fidesz. Come the end of the moratorium, see how they’ll be granting permits to build plazas to Fidesz friendly oligarchs. CBA, by the way, the Fidesz crony chain, may have profited from this ban. CBA stores are usually… Read more »
An
Guest

An article in Nepszabi in Hungarian why Fidesz needed the “plaza stop”

http://nol.hu/gazdasag/ezert_kellett_a_plazastop_a_fidesznek-1303891

HiBoM
Guest

In a country where more than 10% of the population are alcoholics (consuming 50 units or more per week), it is grotesquely wrong to pretend that palinka is a good thing. And allowing people to brew and presumably drink 50 litres a year is scandalous.

Penny Oswalt
Guest

But who is going to defend the Hungarian consumer from the higher prices which are inevitable in smaller retail stores?

It will come down to customers, the higher prices in the smaller retail stores, most likely have a over inflated costs brought about by the laws. The smaller shops if not specialty shops, will have to pass the higher prices if they have a high overhead! Specialty stores will always have a higher cost process because they offer a timeless service.

As far as “Hyper Market Stores”? They may have hit a small roadblock with the new legislation,but in time they will emerge victorious. We have it here too, I am too old not to remember what it was like before “giant warehouses super markets” like…Sams Club,
Costco as an example. It is a competition market here in the USA!

Jean-Paul
Guest
HiBoM : In a country where more than 10% of the population are alcoholics (consuming 50 units or more per week), it is grotesquely wrong to pretend that palinka is a good thing. And allowing people to brew and presumably drink 50 litres a year is scandalous. Agree completely. Taxing homemade pálinka is not only a question of taxation politics question but also a public health question, a way to try to diminish alcool consumption. As to pretend that it is a “hungaricum” is simply ludicrous. Distilling alcool from one’s fruit production has alway been done in farms all over Europe. Nowadays it’s either forbidden (for example in France) or taxed in most countries. As to the problem of hypermarkets, it’s not just a question of going with what is supposed to be the direction of modernization. Indeed, hypermarkets correspond to a certain way of living, to a certain view of society: you have to take your car to drive to the nearest -usually several miles away- hypermarket. That means warmhouse gases, a certain kind of urbanization, a desertification of city centers and disappearance of city life.. Moreover the offering you have in a hypermarket corresponds to what the majority… Read more »
petofi
Guest

I went to buy English Language Learning Texts the other day. Libri was selling them at between 7,500HUF and 9,000HUF. Outrageous. In dollar terms, that’s between $37 and $45.
The cost on Amazon is $22.

The above is symptomatic of high prices when there is a lack of competition. Big food chains, though they may number only 4 or 5 of them, help to keep prices low.

Among other blights, Hungary is afflicted by low wages and high prices–a zig/zag that affects many fields. As with tobacco–and soon with liquor–monopoly system is getting even worse.

gdfxx
Guest
Jean-Paul : HiBoM : In a country where more than 10% of the population are alcoholics (consuming 50 units or more per week), it is grotesquely wrong to pretend that palinka is a good thing. And allowing people to brew and presumably drink 50 litres a year is scandalous. Agree completely. Taxing homemade pálinka is not only a question of taxation politics question but also a public health question, a way to try to diminish alcool consumption. As to pretend that it is a “hungaricum” is simply ludicrous. Distilling alcool from one’s fruit production has alway been done in farms all over Europe. Nowadays it’s either forbidden (for example in France) or taxed in most countries. As to the problem of hypermarkets, it’s not just a question of going with what is supposed to be the direction of modernization. Indeed, hypermarkets correspond to a certain way of living, to a certain view of society: you have to take your car to drive to the nearest -usually several miles away- hypermarket. That means warmhouse gases, a certain kind of urbanization, a desertification of city centers and disappearance of city life.. Moreover the offering you have in a hypermarket corresponds to what… Read more »
bumpy
Guest
I think the *idea* of the plaza-stop is good. By the way the discount chains in Hungary did not stop at all, they bought up existing shops in cities which were then renamed. As CBA is not a chain really but a kind of franchise system, it is easy to purchase existing shops with license or chains can open a new unit with less than 300 sqm size which is anyway a trend in Western Europe in the town centres. Anyway, I disagree with the notion that people have to accept the Walmart-isation or now the Amazon-isation of retail and that this is an inevitable process. These giants completely rearrange the existing structure of retail, with so many undesirable consequences, it is hard to list them. I especially don’t like the malls (which is a separate phenomenon), which format by the way is getting out of fashion in the US too. Out of the many argument against malls, I would raise only one. A new mall instantly creates a concentrated and huge supply of shops. If the retail in general does not grow (due to stagnating incomes and thus demand), it is not difficult to see that all that happens… Read more »
petofi
Guest

Eva S. Balogh :

petofi :
I went to buy English Language Learning Texts the other day. Libri was selling them at between 7,500HUF and 9,000HUF. Outrageous. In dollar terms, that’s between $37 and $45.
The cost on Amazon is $22.

I assume you didn’t want to buy these books for yourself? 😀

Actually, I do like to review an advanced grammar text every four or five years…

petofi
Guest

The corner store…

We have a corner fruit/vegetable shop near us. We try to frequent it but recently the quality of the goods have taken a steep dive. We’re shopping less there now. I see no reason that I should pay higher prices (which they have) for lower quality goods.

Gergo
Guest
I do not want to criticize a decision to shop at Amazon, as I do too, from time to time (when I have no other option). But one has to realize that Amazon completely monopolized the book industry in the US, so much so that the retail chains in the US are in the process of disappearing entirely (and this is happening in the UK too). Already it is almost impossible to buy books from shops in New York, as even there (given the high rents, but given also the most concentrated demand for book in the US and the world) the circumstances do not allow more than a handful of independent shops to operate profitably — in a city of 7 million. Amazon of course also owns the e-book business (with at least 80-90% market share). In Hungary, Libri just bought bookline.hu which is the Hungarian amazon, while Alexandra, another big chain is essentially in the process of getting liquidated. The third chain Lira and Lant has been struggling without aim and strategy for many years. By the way there is also Anima, a dedicated right-wing chain (but with many mainstream titles too) with some 10 outlets, mainly in… Read more »
Gergo
Guest

Eva S. Balogh :
Heti Válasz considers 50 liters of pálinka “a small amount.” Here is the text in Hungarian:
Utoljára kerülhetett adómentes házi pálinka a húsvéti asztalokra, ha az Orbán-kormánynak nem sikerül Brüsszelt eltérítenie attól a szándékától, hogy a kis mennyiségű otthoni pálinkafőzést is adókötelessé tegye.

Fidesz will not enforce the customs laws. It will be like in Holland with small amounts of drug. It is called Gedogen.

Rural people are the key to the success of Fidesz and palinka is a great was to the hearts of the rural voters, self destructive as it is for the anybody. It’s like with kids. Fidesz thinks that at least the rurals have something to kill time with: cook pálinka and drink it.

tappanch
Guest

Will Orban be part of a new German-Russian axis?

http://hvg.hu/itthon/20140424_Berlin_Orban_Viktor_Angela_Merkel_Ukrajna

tappanch
Guest

Headline from Russia:

“Civil war looms as fighting rages in eastern Ukraine”

http://rt.com/news/eastern-ukraine-army-operation-680/

Member

HiBoM :
In a country where more than 10% of the population are alcoholics (consuming 50 units or more per week), it is grotesquely wrong to pretend that palinka is a good thing. And allowing people to brew and presumably drink 50 litres a year is scandalous.

Very good point! It is my understanding that Orban took control of tobacco shops to reduce consumption. I wonder why she does to feel the same about alcoholism.
I am not talking about moderate alcohol consumption here, but talking about almost one litre of palinka (moonshine) per week per family supposedly for home consumption….

Vuk
Guest
Some1 : HiBoM : In a country where more than 10% of the population are alcoholics (consuming 50 units or more per week), it is grotesquely wrong to pretend that palinka is a good thing. And allowing people to brew and presumably drink 50 litres a year is scandalous. Very good point! It is my understanding that Orban took control of tobacco shops to reduce consumption. I wonder why she does to feel the same about alcoholism. I am not talking about moderate alcohol consumption here, but talking about almost one litre of palinka (moonshine) per week per family supposedly for home consumption…. Your understanding is incorrect, and at best naive. Orban took control of tobacco retail because it was s a sure, riskless profit for big multinational retailers, when he could channel that profit to Hungarian cronies, especially that it is a ‘legal’ project to do so. If the legal availability is there and there is only upside (money out of the pockets of Auchan and Tesco into those of friends), why would he NOT do it? Secondly, the limited *legal* availability of a ubiquitous product to which people or an economy is addicted to (e.g. tobacco or gasoline)… Read more »
Member
Eva S. Balogh : Penny Oswalt : As far as “Hyper Market Stores”? They may have hit a small roadblock with the new legislation,but in time they will emerge victorious. We have it here too, I am too old not to remember what it was like before “giant warehouses super markets” like…Sams Club, Costco as an example. It is a competition market here in the USA! Of course, it is inevitable. What I find funny that in Hungary to shop in a so-called “discount store” seems to be something shameful. It shows that you are poor. What nonsense. Most of us in this country make sure that we get what we need at the best price. If it is at Walmart, I will go there. Nothing shameful about it. Well, there are profound underlying issues of globalism, 3rd-world exploitation, environment and health as well, for which mega-corporate and consumer short-termism and bottom-line-ism creates the problem — a growing, unsustainable bubble — not the solution. But I’m no economist, so I won’t go into the pro’s and con’s of all that. One thing I will say, though, with the deepest conviction I have, and that is that the unspeakable horrors that… Read more »
Caprice Goldberg
Guest

Dear Eva,

Do you really shop at WalMart?

Guest
So many interesting and relevant points, hard to comment on them all! @Vuk: Did you mis the irony in Some1’s comment? Of course Orbán is not really interested in Hungarians’ health, maybe not even in his own from the way he looks now … I have to confess that we also do our shopping mainly in the big stores (Aldi, Lidl and Interspar – Tesco only occasionally when they have quality products at a discount because they sell too much crap) and the rest we buy direct from the producer those “Hungaricums” like pumpkin oil, honey and also our free range eggs and hens. We’re also happy when we get meat, ham and sausages from our neighbours – and we shouldn’t forget all the vegetables … But for people living in the city that’s not always an option – so why should they buy the crappy overpriced stuff at the CBA when Aldi is much cheaper – and has a better selection? Though my wife likes Hungarian food (and knows how to prepare it …) we also like international cooking and where do you suppose we can buy the necessary ingredients for that? And that goes for other non-food products… Read more »
googly
Guest
Jean-Paul : HiBoM : In a country where more than 10% of the population are alcoholics (consuming 50 units or more per week), it is grotesquely wrong to pretend that palinka is a good thing. And allowing people to brew and presumably drink 50 litres a year is scandalous. Agree completely. Taxing homemade pálinka is not only a question of taxation politics question but also a public health question, a way to try to diminish alcool consumption. As to pretend that it is a “hungaricum” is simply ludicrous. Distilling alcool from one’s fruit production has alway been done in farms all over Europe. Nowadays it’s either forbidden (for example in France) or taxed in most countries. As to the problem of hypermarkets, it’s not just a question of going with what is supposed to be the direction of modernization. Indeed, hypermarkets correspond to a certain way of living, to a certain view of society: you have to take your car to drive to the nearest -usually several miles away- hypermarket. That means warmhouse gases, a certain kind of urbanization, a desertification of city centers and disappearance of city life.. Moreover the offering you have in a hypermarket corresponds to what… Read more »
googly
Guest

An :
An article in Nepszabi in Hungarian why Fidesz needed the “plaza stop”
http://nol.hu/gazdasag/ezert_kellett_a_plazastop_a_fidesznek-1303891

I don’t have time to read your link, but I assume they mention the fact that the Plaza Stop did not actually stop all construction – some exceptions were made (I can think of two right here in Buda), presumably for those projects built by Fidesz-linked firms or those willing to bribe the authorities.

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