Excerpts from the latest HVG

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Mai 17, 2004

TriGránit To Build Airport For Budget Airlines



The former Soviet airbase at Tököl, near Budapest could be turned into a modern airport serving budget airlines. According to TriGránit Rt’s proposal, transport of passengers, from and to the airport - about 40 kilometres from the city centre - will be arranged through hydrofoils



After two unsuccessful privatisation tenders last year, the State Privatisation and Asset Management Rt. (ÁPV) received six bids for Tököl airport in March. The bidders include real estate tycoon Sándor Demján’s company, TriGránit that earlier proposed to build an airport for budget airlines. According to sources, TriGránit plans to take passengers to the city by hydrofoils on the Danube. The journey would take 40–45 minutes.



Terminal Ferihegy I is too small to serve budget airlines, which served a total of 150,000 passengers in 12 months. (Total passenger traffic at Ferihegy exceeded 5 million last year.) As a result, the aeroplanes of WizzAir airline – led by former Malév CEO József Váradi – will have to use the more expensive Terminal II when it launches service in June. Bratislava-based SkyEurope also has to pay 30%–40% higher tariffs for using Terminal II.



The traffic of budget airlines in Budapest can grow tenfold in a few years. Budapest Airport Rt. plans to open the entire area of Terminal I for budget airlines in 2005. In order to cut costs, airlines opt for using more distant landing fields, as tariffs there are 60%–80% lower than those at central airports, Váradi said.



Tököl airport could be an optional landing field for budget airlines, in accordance with the National Tourism Development Strategy of the Economy and Transport Ministry. “On the long run it is essential to find an airport for budget airlines within a 70-kilometre radius of Budapest,” the ministry’s strategy said. However, the government is not ready to finance such an investment, confirmed Zoltán Székely, an official of the ministry.



Residents in the area are worried. The former Soviet airbase is in the middle of a residential area where 50,000 people live. “Resident could not tolerate more than 10-15 landings a day”, said Gábor Talabos, director of Master Sky Kft., which rents the airport until April 2005. The airport would not be profitable with such little traffic, as the necessary investment would be around 5 billion to 6 billion forints.



Hungary Sticks To Small Business Tax



Hungary’s Finance Ministry does not plan to abolish the simplified entrepreneurial tax (EVA) despite alleged objections by the EU. Talks about modifications will start in Brussels at the end of May.



A few days after Hungary’s accession to the EU, Hungarian news agency MTI reported that the European Committee has raised objections against the simplified entrepreneurial tax (EVA).



According to the report, the EU gave Hungary an ultimatum to modify rules of the EVA scheme otherwise the EC will start a legal procedure against Hungary. The Finance Ministry has not received any notification concerning the EVA tax, the ministry said in a statement. When visiting Hungary a few weeks ago, EU commissioner Frits Bolkestein said the European Commission (EC) is in the process to learn the details of this new taxation form.



The EVA scheme is considered unique in the EU, as it replaces the value added taxes (VAT), corporate tax, dividend tax, personal income tax and the tax on company cars. The tax base used in the EVA scheme is the gross income including VAT. Besides paying 15% EVA tax and 1% local entrepreneurial tax from the gross income, no other taxes are levied.



The EVA was introduced in 2003 for businesses and entrepreneurs with revenues not exceeding HUF 15 million. The limit was raised to HUF 25 million last year. The number of businesses and entrepreneurs choosing the EVA scheme grew to more than 80,000 in 2004, from 60,000 in 2003.



General rules on taxation are similar in different EU member states, but it is up to the individual countries if they wish to apply special tax regulations. VAT is an exception to this rule, as all member states have to comply with EU directives.



According to Péter Oszkó, a tax advisor at Deloitte Rt., one of the EU directives on VAT does not allow any exemptions from paying VAT, while EVA permits just that. “It is a dogmatic interpretation of the regulation to say that enterprises paying EVA do not pay VAT,” said Finance Ministry deputy state secretary Szabolcs Vámosi-Nagy, adding that VAT is included in EVA.



Brussel’s main concern is how to secure enough revenues from taxes. Member states pay their contributions to the EU budget, based on their VAT revenues, and this cannot be stipulated in the case of EVA. According to figures by the Hungarian Finance Ministry, enterprises following the EVA scheme paid a total of HUF 36 billion in taxes into the central budget in 2002. Out of that, HUF 21 billion, or 58.5%, can be regarded as VAT payment. In 2003, central revenues from EVA taxpayers came to HUF 48 billion, of which HUF 28 billion can be regarded as VAT. The rise is more than 30% compared to the year before, Vámosi-Nagy added.



Former Interior Minister Eyes State’s Security Business



The security company owned by former interior minister Sándor Pintér is trying to acquire the money collecting division of Magyar Posta Rt. Pintér is said to have access to the highest political circles, regardless of his close contacts to the opposition vas well.



The Hungarian Development Bank (MFB) has recently bought a 49% stake in Civil Safety Service (CBSZ), a security company led by Sándor Pintér, who was Interior Minister under the previous (FIDESZ) government. According to sources close to the deal, the agreement was made only after prominent members of the government gave their blessing.



The MFB paid HUF 240 million for the stake, and CBSZ will spend that sum on expanding its business. Their potential acquisition target on the saturated local security services market is JNT Security, owned by Magyar Posta.



A few years ago, JNT took over the assets of Defend Security, a company 60% owned by MFB previously. Defend had received a series of state orders from the previous government before it went bankrupt. Magyar Posta proposed its owner, the State Privatisation and Asset Management Rt. (ÁPV), not to sell JNT this year. However, the idea to privatise JNT has recently surfaced in a government decree, sources say. The Finance Ministry explained the government decision with financial reasons. Experts who oppose the plan say it is not wise to sell a company that yields reliable profits.



Pintér, who started his career as a driver and later served as a policeman, has cautiously moved from position to position in the past 15 years. He is said to be making good use of his state administration contacts in the private sector. Pintér has run several businesses, including a fashion business, a car trading firm, a real estate agency and a consulting company. Last year he bought CBSZ, which posted HUF 69 million in profits in 2002.



Most of CBSZ’ revenues come from defence services to OTP Bank, oil and gas company MOL and dairy producer Mizo. CBSZ has recently hired former police officer László Gál, who was accused of corruption earlier but was acquitted of the charges. According to sources close to Pintér, he has managed to keep his influence on the leaders of the national police force even after the change of government. In part due to his friendship with OTP chairman and CEO Sándor Csányi, Pintér has access to top political circles. At the same time, he is also in close contact with the opposition.



Online Dating Flourishes Among Young



About 10% of people aged 19–35 strive to find a partner through the internet There are about 50 local companies that try to make money from the increasingly popular online dating.


Research company TNS Hungary has recently interviewed 1,500 people about their motives to choose the internet for partner search. According to the survey, about 250,000 people between 19 and 35, that is 10% of the age group, opt for online dating when it comes to looking for a partner.



Younger and the more educated men are the most open to online dating. Those who have not been married prefer looking for a partner through the internet, while those who have divorced prefer more traditional methods, such as classified ads or partner agencies. According to another survey, 200,000 people search the web for a partner every day. That is one-fourth of people older than 15 with access to the world wide web.



Market leading partner search page Randivonal has 262,000 registered visitors to date, among them 70,000 enclose a photo. Among visitors of such pages, two-thirds are men and one-third are women, surveys say. Partner agencies also tend to use their clients’ names and addresses for direct marketing purposes. With the information clients tell about themselves, it is easy to get to special target groups.



In some cases, member fees are extremely high. For example, ‘parvaro.hu’ classifies its clients according to their social and economic status, lifestyle and the amount they are willing to pay as a member fee. The more they pay the longer their personal data remain in the data base.



Digital TV Broadcast To Increase Program Supply



Fearing competitors, cable television companies are criticising the government’s plan to subsidise digital terrestrial broadcasting. The Media Act also needs to be amended due to technical changes.



Thanks to the planned debut of digital terrestrial broadcasting, TV viewers will be able to choose from among 30 channels, as against the current three stations (MTV, TV2, RTL Klub) that can be received through ordinary aerials. To switch to digital broadcasting, TV viewers will need a special device, called set-top box, that transforms digital signs. The cheapest model currently costs €100 abroad.



The government is planning to subsidise the purchase of set-top boxes. However, cable and satellite companies are against digital broadcasting, arguing that they can serve about three-quarters of local households. According to László Rajkai, chairman of Hungarian Cable TV and Broadcasting Association, an EU recommendations, dated in 2002, expects governments to interfere the market as little as possible.



According to József Bartha, director of National Radio and Television Board (ORTT), the national network can start digital broadcasting in 2006, and full conversion will be completed by 2012, when analogue stations will stop functioning. The concession of the two national commercial channels will expire in 2012, and the ORTT can require digital broadcast capabilities when it calls for bids for the new concessions.



With digital broadcasting, one channel can beam up to eight programs, depending on the broadcast quality. Viewers can watch interactive programs: they can vote, they can choose the camera through which they want to watch a sports event, and they can influence the end of soap operas. According to foreign experts, the production of interactive programs cost about 50% more than traditional programs.



Securities To Lose Paper Form



In anticipation of the December 31, 2004 deadline, digitalization of securities has speeded up recently.




Owners of MOL shares who failed to submit their stocks to a digitalization process last year, now benefiting from their previous negligence. MOL has announced that it pays 7,998 forints for each printed share, 4.3% higher than the stock’s closing price on May 10. MOL shares have reached new heights in recent weeks. Stock holders who have not turned in their shares yet, can receive HUF 7,998 per share if they return them to the company within five years.



According to the Act on Capital Markets, all printed securities, such as shares, bonds and investment coupons, have to be digitalized by the end of this year. A digitalized security is in fact a set of electronic codes containing specific information. Companies issuing securities have to notify the investors through a newspaper with a national circulation, the official daily gazette Hungarian Capital Markets, and the website of the Budapest Stock Exchange (BÉT) about the selected brokerage or investment company which arranges the digitalization.



OPINION



Interest tax is not a cure – it will create new problems

By Viktor Zsiday




The idea of introducing a tax on interest earnings has re-emerged recently. The government’s message is wrong; instead, structural reform of the big distributive systems could be more effective.




Hungary will have to adopt an interest tax, since all other EU member states levy such a tax. The biggest problem with the idea is its timing. What has happened in the past one year? Due to the government’s spending measures, investors are willing to buy government securities only at higher yields than before, because they consider them less safe. The Hungarian state is regarded as worse debtor than a year ago.



Another problem stems from consumption and from people’s habit to take loans rather than saving money. The high level of interest rates in recent months could counterbalance this. People were more inclined to make savings when they saw interest rates hovering as highs as 10%–12%. But what will they do when they realize that they will only earn an interest of 8% on their savings instead of 10%–12% previously? It is easy to predict the result: smaller savings, larger consumption, increasing current account deficit and an uncertain forint exchange rate. We have seen the same symptoms in 2003. However, this time the economic decline might not be prevented.



The government should introduce the interest tax only after both inflation and nominal interest rates will be closer to the EU average. The government’s response to the high central budget deficit should not be levying tax on interest, instead, introducing structural reforms in big distributive systems [such as health] The further they are delayed, the longer it will take to catch up with the rest of Europe. Regardless how strongly the patient and the doctor object, the operation is inevitable.



The author is equity strategist at AB–Aegon Insurance Rt.