“Today forgetting has perhaps grown more puzzling, than remembering (…)” – so Sigmund Freud starts chapter 7 of his Psychopathology of Everyday Life (1901). This short writing will highlight how the above observation is relevant to so-called “special energy industry taxes” in Hungary (nickname: Robin Hood tax). Perhaps other CEE countries might learn from the Hungarian experience: indirect economic costs of energy industry taxation regimes tend to exceed several times temporary budget benefits.

The Robin Hood tax has a long and complicated history in Hungary. The whole story started in 2008, under the last Socialist government. Hungarian district heating was a loss-making business: payments from domestic customers covered only a portion of the (growing) generation and distribution costs. Energy efficiency, the use of alternative fuels (like thermal water) and upgrading the existing (Soviet) system were all well-recognized topics, but no action had been taken. The only exception was the so-called “panel-building program”: this was designed to improve the isolation of “Kádár blocks” (roughly 650,000 flats) and to introduce metering for district heating. Unfortunately, the current government stopped this initiative in 2011.

So here was the district heating industry that had not enough income to cover its justified costs – hence the first Robin Hood tax was introduced in November 2008. Energy companies, from generators to traders, were told to pay 8% of their pre-tax profit to a special ‘district heating fund’. The legislator made a firm promise that this arrangement should be discontinued after three calendar years. And one last (important) feature: the tax was “pre-paid” to the mentioned fund, in the form of “tax advance payment”. The government of today voted AGAINST this arrangement back in 2008, arguing that this proposal was discretionary and not fair taxation.

Turning the clock forward fourteen years, what is the situation today? The Robin Hood tax is still there, still paid as a “tax advance payment”, covering more industries, than back in 2008 and the tax rate has been increased to 41%. Referring back to Freud, this is an interesting example of political forgetting: as soon as the current government came to power in 2010, they did not remember their original opposition to the Robin Hood tax. The new government introduced a special energy industry super tax, with a retrospective effect in 2010, based on turnover (not pre-tax profit). This taxation effectively killed the emerging Hungarian energy trading sector. Non-Hungarian traders paid the tax for 2010 (based on 2009 turnover) and then left the country; some returned when the idea of a “limited trading license” was introduced for non-Hungarian resident companies a few years later. When the super tax was finally abolished, the good old Robin Hood tax returned as of 1 January 2013, but now with a 31% tax rate (based on pre-tax profit again). This system was stable for a decade, but then, just two weeks ago, the government increased the tax to 41%. Commentators noted that this arrangement was illegal under current Hungarian tax legislation (main rule: a minimum of thirty days should pass between the announcement of a new tax and the first date of its application), but none of the taxpayers started a judicial review procedure.

Some general trends from the above Robin Hood tax story may be summarized here:

1. Special industry taxation is a one-way street: the tax rate can only go up (from 8% to 41% in Hungary);
2. Whatever time limit the government of the day set to discontinue the special tax, this deadline is usually not honored. To rephrase Benjamin Franklin: …in this world, nothing is certain, except death and Robin Hood taxes;
3. The number of industries subject to the Robin Hood tax is always growing (in Hungary, the oil retail sector was added in 2021, and pharmaceutical companies in the last official gazette just now before Christmas); finally,
4. The list of special industry taxes is getting longer and longer: there were four Robin Hood-style taxes in Hungary in 2010, and now there are thirteen.

But was it a good deal for society, as such? Is the Robin Hood tax expensive? Or effective and fair? The economic analysis of this Robin Hood taxation is not particularly promising. The income side is straightforward: the Hungarian government collected around HUF 80 billion (around 200 million euros) from special industry taxes per annum. The social cost side of the equation is more difficult to quantify. As per T-Energy, one of the leading energy analyst firms in Hungary, on average euro 13 billion worth of Hungarian electricity contracts are traded each year. Compared to this number, the annual 200 million euros Robin Hood income looks marginal (around 1.55% only). As was mentioned above, the 2010 Robin Hood tax of the new government triggered a mass exodus of trading firms from Hungary. The side effect of this forced departure was that the Hungarian energy trading industry did not develop into a Western European (primarily, German) style competitive market. Recently, when several SMEs had been kicked out of the so-called Rezsicsökkentés regime, it became clear that only one trader was alive in the Hungarian retail market: MVM, the state-owned multi-utility. Hundreds of SME owners were requesting fixed price electricity/gas quotes from their traditional traders/suppliers in July/August 2022, but the answer was either a firm ‘no’ or only HUPX/CEEGEX (electricity/gas exchanges) – linked, non-fixed, offers were available. How much these SMEs could have saved now, had the Robin Hood tax not exiled several good traders and retailers from the Hungarian energy sector since 2010?

Furthermore, the Robin Hood tax actively discouraged further investments into the Hungarian energy grids. As a vivid reminder of this point, the Hungarian government was forced to suspend all future RES connections to the local electricity networks as from late October 2022. The main argument was that the local grids simply could not cope with more weather-dependent generation: or, in other words, the distribution networks had not been upgraded. This is an EU first, and hopefully last: PV farms are ready, private funds invested (note: state-sponsored feed-in tariff PV farms, like KAT and METAR, are NOT subject to the Robin Hood tax), yet investor-owners could not get their PV units connected. The modernization of the Hungarian electricity and gas distribution grids will take decades; this project alone will cost more, than the 2.55 billion euros income the Robin Hood taxation generated during the last thirteen years (2009-2022).

To conclude, the economic analysis of the Robin Hood tax seems to suggest that the cost side (reduced retail competition + under-investment) was/is higher, than total income. In other words, the Hungarian Robin Hood taxation was/is expensive. The earlier decision-makers realize this sad truth, the more competitive the Hungarian energy sector will be.

Hopefully, the Romanian reader finds the above case study rather theoretical, with little or no practical use: who would want to introduce special energy industry taxes in Romania, if the system so badly failed in Hungary? If the above economic analysis shows that the Robin Hood tax was expensive in Hungary, the Romanian decision-makers will surely learn from this experience and try something else. As the common saying goes: clever is the (wo)man who is learning from the mistakes of others.

About the author Jozsef Balogh is a senior business developer for Axpo Solutions, Switzerland, with a special focus on Central European and Ukrainian electricity, gas and CO2 opportunities.  He had been active in the Central European energy industry in various roles since 1992.  He has been especially active in Ukraine and Hungary.