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Top Court Decision on ‘Special Economic Zones’ Still Leaves Question Marks

Hungary Today 2021.02.24.

Hungary’s Constitutional Court rejected the constitutional complaint of the opposition-led local government of Göd, in which it requested legislation regarding the special economic zone established in the town to be declared unconstitutional and annulled. But the ruling also ordered that Parliament has to provide support commensurate with the responsibilities and competencies of the local governments. Opinions on the decision are divided.

The story of Göd first hit the headlines in April 2020. As a result of the pandemic, the Orbán government declared a special legal order called “state of danger,” and accepted decrees in response to the many challenges posed by Covid-19. One of them created the new legal concept of “special economic zones” in order to “protect investments of national economic importance.”

Govt's New Decree About Special Economic Zones Hits Hard on Opposition-led Göd
Govt's New Decree About Special Economic Zones Hits Hard on Opposition-led Göd

On Friday, the government created the conditions for the establishment of so-called special economic zones and later designated Samsung’s plant in Göd as the first one, meaning that the opposition-led town will fall short of 1/3 of its revenues. The government confirms the decision by citing economic goals, but critics view it as yet another […]Continue reading

In these zones, both decision-making power and revenue (in the form of business taxes) are diverted away from the municipal council, going instead to the county assembly. Samsung’s factory in Göd was appointed the first such zone which through the local business tax, is responsible for 1/3 of the town’s total revenue. The South Korean giant’s battery production plant has always been a priority for the government and has been on the receiving end of generous state support as well.

Many suspect that the reason for the decision was to take away the regulatory power from the opposition-controlled municipal council, and hand control over to the ruling Fidesz-controlled county legislature. Due to the lost revenue, Göd’s opposition (Momentum) Mayor Csaba Balogh called the decision a “death sentence” for the town.

According to the municipality’s complaint, the regulation unnecessarily and disproportionately restricts the fundamental right of Göd’s municipality to property, and that the town had not been compensated for the industrial plant that was taken away.

Opinions are divided on the decision. Some argue that despite the rejection of a constitutional complaint, it is ultimately a success as the court has also stated that the government cannot obstruct local governments, which could be used as a reference point in future legal debates.

Gov't Submits Bill on 'Special Economic Zones'
Gov't Submits Bill on 'Special Economic Zones'

The government has submitted a bill on “special economic zones,” that enables tax revenues of investment projects costing at least HUF 5 billion to be redirected from the local councils to the county councils to achieve a more “balanced distribution.” The government claims the new regulation will help to restart the economy and create jobs […]Continue reading

Budapest Mayor Gergely Karácsony has deemed the decision a success. The mayor believes the ruling basically states that the government cannot take away the revenue of local governments.


 

According to Karácsony, although the court did not find the creation of a special economic zone in Göd unconstitutional, the government cannot withdraw local tax revenue without compensation, even on the grounds of an emergency situation if that endangers the performance of municipal task and the provision of public services.

“Now the Constitutional Court has also made clear what we have been saying for months: the government also has an obligation under its own constitution to compensate local governments for the reduction in business taxes.”

According to Dániel Karsai, a lawyer who helped create the constitutional complaint, the decision could potentially  help every local government as “a significant part of the government decrees exploiting opposition-led municipalities can be challenged.”

“The Constitutional Court today made a decision in the infamous case of Göd. Although the court did not annul the right (or rather deprivation of property) state-of-danger government decrees, it did state a very strong constitutional requirement…,” he wrote on Facebook.

The mayor of Göd was much less positive about the ruling. Although he first called it a success in a Facebook post, in response to the many skeptical comments, he later clarified his stance on the issue.

“I am not overly satisfied with the ruling, I believe that the Constitutional Court did not make the decision in good faith but instead on a political basis.”


 

Balogh however also notes that despite the decision being a “statement of principle,” he thinks the Constitutional Court has made a key statement when announcing that the government cannot obstruct local governments.

In his post, Balogh wrote that with the help of lawyers they are still investigating what could the next step be, whether to turn to Strasbourg or not. But he assured everyone that “we will do our utmost to take the issue to an international level.”

Featured photo by Márton Mónus/MTI