Hungary's restaurant struggles: government policies

A few years ago, I could hardly wait to visit a lovely little restaurant in Budapest. It offered fresh meat, excellent wine, and various cuisines. During COVID, I tried to order from this restaurant, but the food’s freshness doesn’t keep too well on the back of a bicycle on a bumpy road.

With the lockdown over, I was excited to go back, only to find shutters and a closed restaurant. It had survived the economic turmoil of COVID, only to be crushed under the weight of government regulation. That restaurant is not alone. Many were forced to shut down or are struggling because of the actions of the Hungarian government, and new regulations are only making their situation worse. Even now, years after the pandemic, the situation has not improved.

The government had a long-running scheme to keep energy prices low by mandating reductions. Despite the governing party pledging at an election that it would protect its artificial utility price reduction, the scheme has been partially phased out.¹ To make matters worse, Hungary also buys Russian gas for the highest price in the EU.²

Businesses with high energy consumption were surprised with much higher bills because of the end of the price reductions. It may have been economically inevitable, but the government’s broken promise ruined countless business plans.

The Hungarian government, which calls itself conservative, seems to implement lots of populist socialist policies: price caps on basic foodstuffs, for instance, severely hiking inflation, resulting in Hungary having the highest food inflation in the EU.³ All these problems are blamed on Brussels and the war in Ukraine by the government’s spin doctors, even though neighbouring countries aren’t suffering nearly the same inflation trends.

As if that wasn’t enough, low wages have driven Hungary into a labour shortage, with many restaurant staff finding better pay abroad.⁴ That means those who are left behind are less skilled – worse at cooking, poor at waiting, or even impolite to patrons. A new tax law has also increased the price of self-employed subcontractors working in industries such as food delivery.⁵

For restaurant owners, planning business finances into the future is near-impossible because of the erratic nature of policymaking. The Hungarian government appears to govern by decree through a constant stream of ‘emergencies’ used as a pretext for unchecked authority.

Restaurants, then, are faced with huge energy bills, skyrocketing costs for ingredients, and more money spent on less qualified staff. Just to compound their misery, another new law requires them to manually report what their customers are consuming in real time. That means yet more staff costs for small restaurants, which will have to hire a new employee to manage this bureaucracy, since neither the cook nor the waiter has a second to spare as it is.

The government’s reasoning behind that new law is to learn more about tourism. The government suggests local authorities should prepare for a large influx of tourists. This is nonsense justification. Visitors pay tourism tax, and hotels and hostels report customer numbers, so we already know how many tourists there are. Unfortunately, gathering data in this way is a good way for governments to better understand and, in turn, control their citizens.

Walking through the streets of Budapest, you see more and more closed shops and restaurants. The ones which remain are often severely lacking in quality of food and service because of all the cost cuts they have had to make to survive.

Rather than making life harder for restaurants, which ultimately hurts their customers, why not find innovative, technological ways to track the necessary data which don’t hamstring small businesses with already limited resources?

Why not make it easier for restaurants to attract high-quality staff and stay afloat? The new laws want to boost tourism, but most regulations will only hinder it. Lower taxes and smaller administrative burdens will mean better hospitality services, which in turn will attract more tourists.

This article was written by Máté Hajba. Máté is a Hungarian writer and fellow with Young Voices Europe. He also runs the think tank Free Market Foundation.