Renowned economists have written an open letter to István Kapitány, Minister of Economy and Energy, urging the phase-out of the so-called protected fuel price, the raising of the excise duty to its previous level, and the introduction of social compensation. Maintaining the current price will lead to serious economic problems.

Economists ask the minister to inform the public that the current fuel prices could lead to serious economic problems.

The main problem with the protected price is that it encourages the consumption of petrol and diesel just when it should be reduced. In line with the position of the European Commission, they state that we should not be under the illusion that the impact of the Iran war on energy prices is only a temporary phenomenon. Moreover, the prolongation and possible expansion of the conflict in the Middle East could lead to larger shortages and even higher oil prices. That is why the Commission, the International Energy Agency and the International Monetary Fund are all asking governments not to take measures that encourage fuel consumption.

The signatories of the open letter – including Mária Csanádi, Tamás Mellár and András Inotai, doctors of the Hungarian Academy of Sciences – emphasize that artificially low prices create the illusion that the effects of the global energy crisis can be stopped at the border.

The problem is further compounded by the fact that fuel imports have largely stopped in Hungary, as it is not worth importing petroleum products from abroad due to the low domestic wholesale price. Due to the very low margins required for gas stations in the case of the protected fuel prices and deteriorating supply, it is also expected that more and more gas stations will close, as happened in 2022. It is a warning sign that after the petrol price cap was lifted at the end of 2022, fuel cost more in Hungary than it would have cost if the petrol price cap had not been introduced. A similar case can be expected now if the protected price remains in place.

Zoltán Pogátsa, board member of the Clean Air Action Group, said: “Price subsidies benefit the rich above all: the richest 10 percent of the Hungarian population consumes about ten times as much fuel as the poorest 10 percent, and thus, with the artificially low price, the former receive ten times as much support as the latter. I am sure that the current government will not continue the Orbán government’s practice of supporting the rich at the expense of the poor, and will abolish the protected price as soon as possible, raise the excise tax to the previous level, and at the same time increase social benefits, such as low pensions and family allowances, from the additional income generated in this way."

Government intervention in fuel prices is also not justified because fuel prices have essentially remained unchanged in real terms since 1995, while average earnings have increased by 180 percent. This means that today one can buy almost three times as much gasoline from an average income as 30 years ago.

This type of price support is also unacceptable from an environmental point of view, because if fuel prices rise, fuel consumption will decrease, and thus emissions of gases that cause climate change, so it will be easier for Hungary to meet the EU’s climate requirements.

According to the experts, the protected price only seemingly helps the population and businesses, as in the end, everyone pays the real cost of fuel in some way: in the form of a shortage of goods, higher prices later, polluted air or even lower state welfare expenditures, as it can mean a loss of revenue of up to hundreds of billions of Forints for the public finances.

The experts formulated their open letter in the hope of social and professional dialogue, also indicating internationally recognized sources for dealing with the problem.

The open letter in Hungarian is accessible here, and its English translation is here.