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Chances of Hungarian Cinema in the EU

Considering Brussels’s observations, the Ministry of Education and Culture would modify the film law in Hungary.

16 April, 2008 - filmhu
Chances of Hungarian Cinema in the EU
Filmhu discussed the necessities of changes and significances with vice artistic director Balázs Sámuel and Tamás Csutak, head of Abacus Consult Kft., a company participating in working out the modifications.

filmhu:On 31 December 2007 the latest two-year Hungarian state subsidy initiative for films condoned by the European Union expired. The directorate general for competition of the European Council in charge of the matter intends to make some amendments in the Hungarian system, especially concerning indirect subsidies.

Balázs Sámuel: Let me refine this statement. The whole system of film subsidy, including the current legal framework and its financial background in film, is under complete scrutiny. It needs to be emphasized, for it is mostly the threat of obliterating the 20 percent indirect state support (tax break) is what gets mentioned in all forums.  However, to make it simple, no one wants to take away anything, at least nothing that there is a chance to save from the point of view of the EU. Fine tuning the support system and amending the contents of the film law are made necessary by the harmonization with EU regulations.

With the inspections Brussels intends to prevent a state subsidy war between the member countries in a way that concerns tax breaks and influences competition. Of course beyond matters of principle there are enormous rifts between size and cultural-political potential of countries, so we have to make sure that future regulations do not lead to preservation of current economic differences as this way our cultural opportunities would be much tighter, which is just as bad for competition.

filmhu:The 2006 modification of the film law was also owing to pressure from the EU. Why wasn’t that enough?

B.S.: We announced the subsidy programme upon our accession to the Union. It was not examined back then, it was simply acknowledged to be operational. In December 2005, however, there was a minor, simple inspection that resulted in the 2006 amendment. It involved a fundamental change: state support could go as far as 50% of the total budget, although in special cases – ultra low budget films, projects with low distribution potential – it could go up to 70, 90 and 100%. The EU gave the programme go ahead until 31 December 2007 with these modifications. Last March the Ministry let Brussels know that we would like to continue with the system.

filmhu:One year later the fate of the support system is nevertheless still in arbitrations.

B. S.:  Knowing the EU procedures that apply to every state besides Hungary, it is a long and special process. It is not like the Union states its objections based on which we can implement the necessary modifications. We were left in the dark for a long time. Last March we submitted a request to leave the system as it was.  The Council had many questions and after the Hungarian responses they had more. Finally, last September we got to meet EU representatives who gave voice to their concerns in an informal way.

Tamás Csutak: Let me add that of course it could be predicted which were the disputable issues within the support system, partly from the questions and also because the Ministry is aware of how tax break based subsidy systems work in the EU states. In these systems to get the support the applicant must obey certain cultural criteria. We also knew that the definition of exemptions from the normal amount of the subsidy also had to be fine tuned.

The Ministry was in a difficult position because it was a realistic option that the Hungarian lawmaker might consider the system good as it was and take the risk of a formal inspection by Brussels. Doing this would have meant a prolonged process with a much more uncertain outcome to present for the directorate general for competition, and in case of a negative decision the whole system would have collapsed.

B.S.:  The Ministry’s conviction is that due to the small size of the Hungarian market and the fact that the total amount of state subsidy is far behind that in Germany or France, the local subsidy system has no competition influencing effect whatsoever.  However, amidst a formal inspection the market might become uncertain and future may seem more unpredictable, and last year’s outstanding performance may have fallen back to the level of 2003 and ’04.
We worked out several versions for this for the EU, and we are hoping to achieve our goals both in Brussels and Budapest so that until the end of the spring term, that is, mid-June, Parliament can vote on the approved bill.

filmhu:What kind of expectations did the EU representatives come up with last September?

B.S.: Fortunately it already transpired back then that they did not wish to upset the system, albeit in some cases they wanted fundamental changes. As Tamás has mentioned, they expressed objections toward two major issues: the amount of subsidy and the tax break.

filmhu:In the new system, how would the amount of subsidy change?

B.S.: In the general EU practice the amount of subsidy is 50% - it’s a cumulative sum, implies both direct subsidy and tax break. From this 50% the film directive issued in 2001 by the European Commission allows two exemptions: one of them applies to low budget projects and the other to “difficult” films. We had introduced these categories earlier, but there were some observations regarding terms and conditions.

Namely that in the Hungarian regulation there are too many cultural aspects regarding criteria of the the low budget and the so-called difficult films. For instance, in relation to the size of the budget, categories like the shooting needing to occur in Hungarian and whether the project contributes to cultural diversity make no sense. 

Modifying these meant no major problem, but there was a debate about value limits, regarding mainly the subsidies amounting to 70 and 90%. About the HUF 500 million budget limitation expressed in the film law the average budget of Hungarian film productions have been examined. Although in the European context these are practically low budget productions, in the regulations local peculiarities need to be considered, and the average remains below HUF 500 million. So it will have to be lowered. At the same time it is also true that Hungarian films receive an average of 50-55% state subsidy, so there is no need to fight relentlessly for something that is not practical. What’s more, conditions for positive discrimination will remain, as in the case of difficult films the possibility for 90% subsidy might remain unchanged – these films are those whose production costs may not plausibly be recouped through distribution.

filmhu: What’s the novelty in the aforementioned cultural test? Because in the film law there were already cultural criteria mentioned for the classification of films.

T.CS.: The current cultural criterion system serves to determine the degree of Hungarian cultural, creative and production contribution to film projects applying for direct state subsidy. Through this process a given project is classified as Hungarian, co-production with Hungarian involvement or other. This determines what sort of competitions can its producers apply to and in the given competition what degree of state subsidy they might apply for.

The newly planned test is expected to determine whether any film project in Hungary is really entitled for any state subsidy, whether it is direct or indirect. In harmony with existing and EU-condoned international systems this test examining entitlement for subsidy is based on cultural, creative and production criteria. Depending on adherence to these criteria it determines a given film project’s entitlement for state subsidy. A fundamental principle is that without adhering to one cultural criterion the test cannot be fulfilled, and that in the relation of individual elements cultural aspects are given emphasis.  In its current version, 19 points out of 37 have to be achieved for being entitled for subsidy.

filmhu: How does this test, compulsory for all productions applying for state subsidy, measure culture?

B.S.: The biggest weight is represented by cultural content, and the system is formed in a way that the cumulative score of creative and production elements may not achieve 50% of the total score, so the project must have some cultural content. At least this is the plan.

filmhu: You have mentioned that several examples were used from abroad. This must have given help for the preparation, but it’s also a benchmark, as these have already been accepted by the competition authorities.

T.CS.: Of course it was important, but it needs to be noted that there is a massive discrepancy in the individual lobbying power of the member states. France, for instance, does not have such a test, as there every motion picture is automatically deemed to possess cultural content, hence accepted as enriching French culture. As for the examples, the English system introduced two years ago and the German and Maltese systems launched least year could also be used as great guidance, but we analyzed the Dutch and Belgian conditions as well. We attempted to synthesize known and accepted cultural tests both in terminology and structure. With the added sensibility, of course, that adapting foreign patterns must accommodate to local peculiarities and serve the interests of Hungarian filmmakers.

filmhu:Until the ratification of the new system, what happens to productions applying after 1 January?

B.S.: It’s imperative that with productions registered before 31 December last year there can be no hindrance as for the subsidies. Though unrelated to film, there is a regulation in the EU that in case of changes in the law the submission date of a given project is what counts.

Since January the situation has been a little more difficult, as though the current Hungarian regulations control film subsidies, pending Brussels’s approval no tax break can be legally given to a production that had not applied for registration until 31 December 2007. There are some exemptions, though: with subsidies deemed low amount, that is under HUF 50 million there is no problem, because the amount is so low that according to Brussels regulation, it does not influence trade between member states.

At the same time, the objective is that the Hungarian film industry must not be left unprotected, hence we are striving to close negotiations soon.

filmhu: Speaking of the film industry, how fluent is the dialogue between industry organizations and the Ministry?

B.S.: We are in constant arbitration with prominent organizations. In last October we had a meeting with the Motion Picture Coordination Council, and we presented the different versions to the Motion Picture Public Fund, the Film Office and the Film Artists’ Society. We have been speaking to other film industry players, such as producers – we tried to listen to everyone’s opinion. I can safely say that there is a consensus within the industry regarding the key plans developed by the Ministry.

András Schreiber