The Hungarian government’s newest business venture: Installing an e-toll system

György Matolcsy’s failed attempts at putting together a budget that doesn’t need almost immediate adjustment are legendary by now. The final budget accepted in December looked suspicious from the very beginning. Matolcsy included about 400 billion forints from taxes that were not in accordance with European Union laws. If the ruling of the European Court of Justice goes against Hungary, which seems likely, the companies that were so taxed must be reimbursed. So, there is already a 400 billion hole in the 2013 budget.

But that is just the beginning.  There are two other listed sources of revenue that most likely will not add a forint to the coffers of the Hungarian state. You may recall that the Orbán government hoped to receive 75 billion forints from an e-toll system that would require trucks over 3.5 tons to pay per kilometer fees on Hungarian roads. The system was supposed to be functional by July 1, 2013. Another 95 billion forints of value-added tax was supposed to be received by introducing a cash register network directly connected to the Hungarian equivalent of the Internal Revenue Service.

Well, it looks as if neither system will be in place by July 1. Here I would like to explain what went wrong with the e-toll system. Let’s start with the fundamentals. To work out such a complex system takes a lot of time. For example, in Germany, where the system functions well, the government began thinking about its introduction in 1998 but the law regarding the e-toll system was enacted only in 2002. The Germans hoped that the system would be up and running in 2003, but it was completed only in 2006. It is based on a satellite positioning system.  The Austrians also took their time planning and eventually setting up a system in 2003. In Hungary, by contrast, the decision was reached within a few months and by September companies were invited to tender bids for the new electronic toll road system. There were two bidders: T-Systems, a unit of Magyar Telekom, with a 53.4 billion forint bid and Getronics with a bid of 34.89 billion forints. The Hungarian government opted for the lower bid although Getronics had no prior experience in this area. On January 19, in large measure because of the hefty fines that would be levied if it did not complete the project on time, Getronics decided not to sign the contract. The Hungarian government, instead of turning to T-Systems, the under-bidder, decided to go it alone as a kind of “general contractor.”

Before pondering the wisdom of this move, let’s go back a bit in time to review Viktor Orbán’s attitude toward tolls in general. When he became prime minister in 1998 there was a functioning per kilometer system in place. It was the old-fashioned variety, with gates where one got a ticket which drivers paid once they left the toll road. Viktor Orbán in those days didn’t like that system. In its place the first Orbán government introduced a system based on prepaid fees that allowed the owner of the car to be on the road at certain times. It was called the “matrica” system. Matrica means sticker in Hungarian.

So, after 1998 all the “gates” on the toll roads were dismantled because Orbán maintained that “gates are for football fields and not for roads.” At that time there were altogether about 80 such gates on two highways (M1 and M3). To build them cost about 5 billion forints; it was another 1 billion to demolish them. I remember being horrified at the idea of demolishing these gates and substituting the “sticker” system that I found unfair. After all, a valid sticker cost the same whether the person drove 200 km or 20km on any given day. Moreover, ascertaining whether a driver had a valid sticker was haphazard; the state relied on spot checking.

Fourteen years later Orbán obviously changed his mind. As far as I’m concerned this would be fine if the e-toll system was professionally and competently designed and executed. But, according to rumor, the job will end up in the hands of companies whose management teams have close ties to the government. The rationale for choosing them will be based not on experience and competence but on political connections. Most people claim that in Hungary there is simply no company capable of creating an e-toll system that is up to snuff. Yet Orbán promised the pensioners in Vásárosnamény that on January 23 Hungary will have an e-toll system that will be all Hungarian.

Illustration to autopult.hu's article on the subject of e-toll

The illustration accompanying autopult.hu’s article on the subject of  an e-toll system, Hungarian style

The government’s self-confidence is not shaken. András Giró-Szász announced that Getronics’s pulling out is only “a minor detail.” Orbán assured his listeners that all the budgets he submitted in the past went through with flying colors and this will also be true of the 2013 budget. Well, flying colors is surely a bit of an exaggeration because we all remember how many times Matolcsy had to change the figures and how many new taxes had to be introduced to meet the EU’s deficit target.

A toll system that works only in Hungary and that is not compatible with those of other countries in the European Union would be a waste of money, according to experts. Apparently within a few years the European Union is planning to introduce a single system that will be based on satellite technology. There is another problem if a unique Hungarian system is introduced. There is a Union rule stating that trucks from EU countries cannot be stopped at borders. That means that inside of the vehicles there must be a piece of equipment that is able to record the traveled kilometers. In an incompatible system that wouldn’t work. Trucks would need a separate Hungarian recording system. In addition, European Union rules require that all information about time, route, etc. must be safely stored, and experts fear that any system that could be introduced in five months wouldn’t be sophisticated enough to ensure the safe storage of information.

All in all, most people are pretty certain that with the Hungarian state as “general contractor” the proposed e-toll system will be a flop. Earlier the Hungarian government wanted to have its own mobile service and announced its plan with great fanfare. Even though the new company existed only on paper, it received a frequency necessary for operation. The government even appointed a CEO. Everybody told the government that it was an unnecessary expense. There were three other providers and there was no reason to have a fourth company. As a blog writer said, “the catastrophe was predictable.” And it was. The blogger is certain that the same fate awaits the e-toll business of the Orbán government.

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56 comments

  1. sebt – I share your opinions re the proposed UK identity card, it almost made me glad Labour lost the election (although I suspect even they would have quietly ditched the idea within a year or two).

    But ID cards are an interesting topic in the context of HS, as many of the contributors come from countries where the concept is accepted without question. My own wife (Hungarian) is equally puzzled that we don’t have ID cards and that I am so opposed to them.

    And this is a discussion that I have a lot of problems with. After many years of being part of a Hungarian family, living part of the year in Hungary, and travelling around Europe, I can see just how useful ID cards are, and how much easier they would make life in the UK – and yet I still remain opposed to them. It still seems wrong to me that a ‘free’ people should be obliged to carry an ID card, and yet the rest of Europe is quite happy to have them.

  2. London Calling!

    Sebt you can include the ‘e-till’ scheme in this too. Orban plans to wire up every cash till in the country to the central tax office.

    Most tills are already adapted at the sharp end – it’s just (!) the main infrastructure that needs to be built.

    As a (very costly) fraud-prevention measure it has obvious built-in failure. If nowhere else, the Hungarian vendor and purchaser are more canny than the Greeks in tax avoidance with vendors knowing instantly that you are a ‘no-receipt’ candidate when they whip out their clandestine parallel book-keeping books!

    I have learnt that much from Hungarian Spectrum!

    Of course they will by-pass the ‘spy-till’ – and even allow purchases in foreign currency, as the Forint weakens.

    As far as I know too: no other country has installed this measure – and no-doubt Matolcsy will be claiming he is blazing a trail which the ‘collapsing EU’ will follow.

    (Actually Hungary is benefiting so much from the EU (and the US) run-off of Quantitative Easing which will stop soon – so we are in for interesting times.)

    The ‘spy-in-the-till’ is so redolent of communist times too – a retrogressive step surely. So ‘breathed-air’ meters in every home soon?

    But we will see.

    Regards

    Charlie

  3. Paul :
    But ID cards are an interesting topic in the context of HS, as many of the contributors come from countries where the concept is accepted without question. My own wife (Hungarian) is equally puzzled that we don’t have ID cards and that I am so opposed to them.

    Thanks for your replies, Paul and CharlieH.

    Exactly this argument – that Europeans accept ID cards with no problems – was used by the UK government. But what this “argument” left out was the fact that the UK card scheme being proposed was nothing like any European ID system. It was in fact far more like the Hungarian e-till scheme CharlieH outlines: no transaction (from opening a bank account or claiming benefits, to such trivial things as checking into a hotel, or buying alcohol when you look as though you might be under 18) would take place without the use of the ID card being logged to a central government database.

    So whether European-style ID cards would be a good thing or not in the UK is an interesting question (with pros and cons as you note, Paul) – but not a question which was actually relevant, or properly explored, in the UK controversy!

    My own opinion was changed by researching and campaigning. I’m uncomfortable about any kind of obligatory ID card. But I now think that a government-backed and guaranteed, voluntarily-carried electronic tool that you could use to selectively verify things about yourself (NB – verification is not the same as identification!), with control over what is revealed in any particular situation (e.g. when buying alcohol, the counterparty only needs to know you’re over 18 – they don’t even need to know your DoB, let alone your name or address), could be very useful. And if it was possible to provide this reasonably cheaply, people would take it up voluntarily, simply because, as Paul observes about existing low-tech European ID cards, it makes life easier.

    Of course my support for such an idea is still irrelevant – because the proposed UK scheme was, again, not this, but something else. Whether the kind of thing the LSE were proposing (or my version of it) is even technically, let alone economically possible is a question that’s never been addressed, because the ID cards debate in the UK was dominated by a government determined to obfuscate the whole issue.

    So the Hungarian e-till system makes for an interesting parallel. Why did the UK Labour government insist that every “ID card examination event” be centrally logged, authorised and audited? They claimed that it would prevent, or mitigate fraudulent use of the card. It was as if, after granting such enormous power to this thing they dreamed up (remember, it was going to eliminate benefit fraud, illegal working by immigrants, identity theft, and possibly also the common cold), they became terrified of what they’d unleashed: rather than letting ID cards out into the big bad world (where ingenious people and fraudsters exist) to do their job, and mitigate some inevitable level of fraudulent use, they had to turn the cards into tokens, useless except as keys into a central system – a system which would have had to be on-line 24/7, 365 days a year, to service every significant transaction made by a population of 60m people!

    I suspect that the Hungarian e-till project will have similar, phantastic ambitions attached to it – that it’ll utterly eliminate sales tax avoidance in Hungary, for instance. And this phantasy will justify throwing more and more enormous sums at money at the project, to make it every so slightly more hack-proof, or to make it harder to side-step it. Because it’s a One System To Solve All Problems. Meanwhile, European governments can tolerate some inevitable occurrence of forgery of their low-tech ID cards, because the entire administration of government doesn’t depend on them: there are other systems in place.

    The common factor in both cases is desperation. A desperate government determined to prove that it’s in control by means of grand gestures, when the real world is not that simple.

    On an OT … I enjoyed the diversion of the discussion on the Canadian refugees post a few days ago. I’m struggling with my “-ik” verbs at the moment!

  4. @Paul: “It still seems wrong to me that a ‘free’ people should be obliged to carry an ID card”

    Free people already have to carry an ID card when they travel (passport). Well, in case of Europeans, when they travel outside the EU.

    I have similar “freedom” issues with passports, though. I wish it was like before the first world war, when if you wanted to go across a border, you could just do it without official documents. Of course, I understand the practicality of having passports, and why countries decided to use them (passports were not ubiquitous before the first world war).

  5. @Sebt: You made some very relevant comments here!

    On the ID-cards – the German situation:
    We have a law that says you must have a passport or an id-card (I have both). The German id-card also shows your current address – so it is a kind of voter registration too …

    I also use the id-card here in Hungary at the bank eg.

    PS:
    You are not obliged to carry your id-card with you, but when the police stop you they might want to accompany you home and then have a look at your card or passport…
    And the fine can be up to 5000 € (in theory, usually it’s around 20 – 50 € …)
    BTW, Austria and Switzerland don’t have this type of law!

  6. Update here: Portfolio.hu is reporting on an amended sticker system that will allow the government to charge on a per/km basis for some sections of the highways. It’s a recognition that there is no way to get an e-toll system in place in 2013.

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