Hungarian construction manufacturers are suffering

The government imposed a new punitive tax on the sector and it has led to the closing of almost all of the Hungarian brick and tile factories. All the while, employees of said factories are being layed off in mass numbers.

The Hungarian construction sector has been in a nosedive for a while now. The new punitive mine tax only worsens the situation for the factories. The government specifically aimed the new restrictive tax at this industry, which has no choice but to stop production. The industry that already had been in a decline now plummets. The Hungarian brick and tile factories all close their doors to weather the new tax. These cause stutters in production and layoffs in the workforce.

The government aims to make existing in Hungary harder for the big multinational companies. So far it seems to succeed; however, the situation is not as controlled as it could be. The new punitive tax they introduced affects the whole industry, not just the foreign companies. In February, the government brought in a new mining fee that touched on cement production. Now, they extended it to fired brick, ceramics, and tile manufacturers as well.

Read more about Hungarian taxes HERE and HERE.

Taxing the construction sector

Manufacturers with annual revenues exceeding HUF 3 billion (EUR ~8 million) are required to pay 90% of the excess revenue over the government-set price as a punitive tax to the budget. The supplementary mining fee was imposed based on sales prices that were 41% higher than the prices in January 2020. These are significantly lower than the current market prices. This means that manufacturers can only sell their goods at a loss, Zoltán Stocker, President of the Association of Construction, Wood, and Building Material Industry’s Workers’ Union, told SzeretlekMagyarország.

The impact

This adds to the problem of the Hungarian construction material market’s downfall, so companies are resorting to selling out of stock. Production has been interrupted so companies can get rid of their unsold inventory that had accumulated. Most companies reduced or shut down their production completely. This way, there’s no need for the previous three-shift production and they can reduce the workforce too.

In some companies, as much as 30-40% of the workforce was laid off, while in other companies, the chosen methods were partial layoffs or temporary suspensions with employees on standby. According to 24.hu, almost a thousand workers have lost their job in the sector by now. Thankfully, most of these ex-employees are skilled workers, who, due to their professional skills, will hopefully find new workplaces easily.

Zoltán Stocker commented that the punitive tax also negatively affects the positions of the remaining employees. The employer’s losses significantly influence whether there are opportunities such as further wage increases or one-time wage compensations.

The foreseeable consequences

According to János Lázár, the government aims to conquer the field of construction materials, and they hope to achieve their goal with the help of this new tax. Thus, driving out any dominating foreign companies and letting Hungarians take the scene is what they want to do. However, it seems like the big multinational companies the tax was aimed at can outlast this downturn. The Industry’s Workers’ Union reports that none of them will handle the problem by selling their factories.

These companies are multinational, which means they are not restricted to one country, but rather based in various ones. There are always regions where the production is hitting a low, so they can balance it out with factories in other regions. This approach to the market can potentially help them weather the storm for years. One way or the other, the companies concerned are planning long-term.

Hopefully for them, it won’t be that long. The European Union is already investigating Hungary for infringement in two cases. One infringement being the fixed price of construction materials and the other the supplementary mining fee.