Eastern Approaches: Tax huff in Hungary

By ERIC JOHNSON  |  Sept. 23, 2002 at 7:54 PM
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BUDAPEST, Hungary, Sept. 23 (UPI) -- A few weeks ago, folks at the Hungarian Ministry of Foreign Affairs had to call police to quiet down a lone protester standing outside their office windows shouting anti-tobacco slogans through a bullhorn.

The protester, Budapest's well-known smoking foe Dr. Peter Felix, cooled off after police arrived. Yet the incident and similar antics by tobacco opponents have grabbed the Hungarian government's attention and stirred emotions at a time when cigarette taxation is a hot topic in East Europe.

Stiff increases in national excise taxes for tobacco were a key part of the tax reform requirements built into the European Union's enlargement strategy.

According to rules crafted in the mid-1990s, Hungary and other "first-wave" enlargement countries were supposed to enact reform legislation by 2002 to harmonize tax rates with West Europe and, thus, qualify for EU entry in 2004.

The tax hike plan was applauded by anti-smoking groups across the continent as well the European arm of the World Health Organization, which -- at a meeting last week -- agreed that higher taxes, along with advertising limits and education, should be pillars of a fight against smoking.

Smoking opponents for years have backed higher prices as a way to cut East Europe's insatiable urge to light up, especially among youths.

But in recent months, pressure from several candidate countries prompted EU enlargement negotiators to back off on tobacco tax reform in the East. At the request of individual countries, the EU granted cigarette-tax concessions for Poland, Slovakia, Estonia, Latvia, Lithuania, Bulgaria and the Czech Republic.

Each country will be able to delay cigarette tax increases for several years. Poland got permission to delay reforms until 2009. Estonia can wait until 2010.

Hungary's finance and foreign ministers asked for a similar concession last spring -- igniting the ire of Dr. Felix and others in his camp. Smoking opponents believe that government ministers sought concessions under pressure from, and in behalf of, big tobacco companies.

The official arguments for tax-hike delays range from concerns that higher taxes would encourage cigarette smuggling, to a fear that costlier smokes would spark consumer rebellions that eventually could lead to rejection of voter referendums for EU membership in candidate countries.

In granting the delays, the EU found those arguments valid.

For example, EU negotiators gave a nod to Estonia's argument that "raising the excise duty would have negatively affected the inhabitants' purchasing power and brought an increase in tax fraud and contraband."

But an anti-smoking advocate with Dr. Felix in Budapest, Dr. Imre Vadasz, told United Press International that he doesn't buy those arguments.

"What is the explanation of this action to reopen talks on cigarette taxation?" Dr. Vadasz asked. "'Prevention of cigarette smuggling,' says the official explanation. It is more than suspicious that the tobacco industry opposes increasing the tax with the same arguments."

Hungary bargained for a break under circumstances that particularly enraged smoking opponents.

It was one of the first candidates for EU enlargement when applying in 1994. As a result, the Budapest government has spent years negotiating tax reform with Brussels.

Finally in June 2001, Hungary and the EU formally closed the "tax chapter" of their enlargement talks. The chapter, which every candidate must close, encompasses the plan to boost cigarette taxes to West Europe's level of more than 50 percent of cost.

But Budapest asked Brussels to take another look at its cigarette tax plan because -- as foreign ministry spokesman Tamas Toth told the MTI news agency -- the EU handed a concession to neighboring Slovakia in March.

Toth said Hungary deserved something equal to Slovakia's five-year tax delay to prevent Slovak smugglers from "flooding" his country with cheaper cigarettes and actually reducing tobacco tax revenues.

Actually, Hungary has already taken several major anti-smoking steps that put the country far ahead of most EU candidates. A total ban on tobacco advertising took effect in January, cigarette machines were booted from restaurants and pubs in March and a 20 percent excise tax took effect in August.

But it's not enough for Drs. Felix, Vadasz and others. Noting that Hungary has the world's highest lung cancer death rate among men, and that smoking among 16-year-olds rose in the 1990s to nearly 30 percent, the doctors want the government to rethink its request for a tax concession.

Dr. Vadasz and his group, the Alliance for Tobacco Control, recently filed a formal complaint with the government. They received a hint of support from the health ministry, which in a letter promised "to do their best for the sake of the population and for the success of the health promotion program."

But for now, Hungary's bid to delay the tax increase remains on the negotiating table in Brussels. A decision -- one likely to bring back Dr. Felix's bullhorn -- is expected by December.

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