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Hungary – EHS Candidate for Reform

Fuel tax refund for agriculture

The fuel tax refund for agriculture aims to reimburse Hungarian farmers and fishermen for the excise tax they pay on diesel fuel used for agricultural activities. The refund fluctuates between 82% and 83.5% of the standard excise tax depending on the oil prices in the world. The subsidy only covers the first 97 litres of diesel used per hectare per year. Similar subsidies exist in Belgium, Czech Republic, France, Germany, Greece, Ireland, Italy, Luxembourg, Latvia, Poland, Portugal, Slovakia, Slovenia, Spain and Sweden.

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The subsidy makes diesel cheaper for farmers and fishermen. This leads to increased production levels due to lower production costs and incentivises mechanisation. The budgetary impact of the subsidy was EUR 78 million in 2019. If the subsidy were abolished, it would increase diesel price by 26.8% for the first 97 litres per hectare. The livestock farms currently get all their fuel subsidised and would face a cost increase of 27%, whereas the price increase for vegetable farmers would be 9%. This would decrease diesel consumption by 1.9% for most consuming farmers to 5.4% for least consuming farmers.

The environmental impacts caused by the subsidy include increased GHG emissions, air pollution and higher resource, pesticide and fertiliser use. The abolishment of the subsidy would decrease CO2 emissions by 44,500 tonnes per year.

In Hungary, the tax refund is perceived as a support to farmers allowing them to produce their goods at a lower price. There are no plans to phase out the subsidy. Several options for reform could be considered. One option would be to stagger the reform to give farmers time to adapt. The use of the additional tax income to fund energy efficiency investments or lump sum payments based on farmed hectares could also be viable options. Special care would need to be taken to ensure that the reform would not cause small users of fuel to be at a disadvantage compared to large users.

More information on the fuel tax refund for agriculture and other candidates for reform in Hungary and other Member States can be found in the country case studies and factsheets compilation.