Hungary and EU at odds over taxes, media law

A man uses the auto teller machine in Budapest October 31, 2008.

BUDAPEST/BRUSSELS (Reuters) - Hungary's EU presidency, already clouded by a press freedom row, stumbled further on its first working day when the European Commission said it was investigating the legality of "crisis taxes" imposed by the centre-right government.

The Commission said on Monday it was looking into the special taxes on the telecoms, retail and energy sectors, as well as complaints by a number of affected foreign companies.

It was the latest in a series of conflicts between Hungary and the European Union since Prime Minister Viktor Orban rejected austerity measures, cut ties with the International Monetary Fund and opted for unorthodox fiscal steps to cut the budget deficit and boost economic growth.

Several EU countries have condemned a new Hungarian media law which took effect on Jan. 1. That prompted Budapest, which inherited the bloc's six-month rotating presidency the same day, to hit back on Monday at what it called "unfounded, at times outright absurd accusations".

German Economics Minister Rainer Bruederle added his voice on Monday to those of 15 foreign firms -- including ING Group NV, RWE AG, Deutsche Telekom AG and OMV AG -- whose chief executives wrote to Brussels last month to condemn the windfall taxes.

European Commission spokesman Olivier Bailly said the Commission had written to the Hungarian government in October asking for information, and had received a response even before the companies sent their complaint.

"We are now looking at the formal complaint and the letter from the Hungarian government," Bailly told reporters.

The companies said the Hungarian government's decisions showed "a trend towards using selected sectors and foreign companies in particular to balance the state budget."

"This harms investments as well as the credibility in Hungary's commitment to the European internal market," they said.

Germany's Bruederle told Sueddeutsche Zeitung: "Taxes that are primarily directed at foreign companies are problematic in principle in the European internal market."

The levies on the energy, telecommunications and retail sectors are due to raise 161 billion forints ($809 million) this year alone. The one-off taxes are due to expire by 2013.

It was not clear whether the Commission was also investigating the legality of a financial sector tax, expected to produce 200 billion forints in revenue this year.

Orban's government, which has a majority of over two-thirds in parliament, has not shied from using its exceptionally strong mandate to implement controversial policies it says are in Hungary's national interest.

MEDIA ROW

In the past weeks, Hungary's new media law has drawn unusual public rebukes from Britain, Germany and Luxembourg, whose foreign minister openly questioned last week whether Hungary was worthy of leading the EU.

Under the law, a new media authority dominated by appointees of the ruling Fidesz party will oversee all public news production. The body can also levy big fines on private media, which are required to be "balanced".

Budapest said it was confident that the regulation "complies with the relevant EU standards in all respects."

"A common trait of the opinions expressed by the media is that they apparently lack in-depth knowledge of the Act's text," the Public Administration and Justice Ministry said.

"Instead of formulating specific criticisms, they are a collection of unfounded, at times outright absurd accusations. The Hungarian government remains committed to freedom of the press, and in no way wishes to stifle the opposition's views."

On Monday, the left-wing Nepszabadsag carried the statement: "The freedom of the press in Hungary comes to an end" on its front page in 23 EU languages.

Another paper, Nepszava, a fervent critic of the government's policies, said that freedom of the press was a fundamental right, which should be defended, echoing recent comments by Germany's deputy foreign minister.

(Additional reporting by Krisztina Than; editing by Mark Trevelyan)