By Krizstina Than and Marton Dunai
BUDAPEST (Reuters) - Hungarian Prime Minister Viktor Orban froze plans on Friday to impose a tax on Internet traffic, climbing down in the face of massive street protests and warnings from the European Union that the levy was a mistake.
Opponents of the tax, who said it would have hurt consumers already struggling with a faltering economy, described the U-turn as a major victory.
But Orban's announcement was unlikely to end discontent among liberal Hungarians who accuse him of being an autocrat and are frustrated there is no prospect of removing him until elections in 2018. Recent anti-tax rallies have been a catalyst for broader anti-government protests.
"This tax in its current form cannot be introduced," Orban told public radio. "If the people not only dislike something but also consider it unreasonable then it should not be done."
The climb-down was unusual for the usually combative Orban, but he may have decided that he already had enough contentious issues on his plate.
The U.S. government has barred six people with ties to the government in Hungary, a NATO ally, from entering the United States. It alleges they are involved in corruption. Orban is also tangling with big European banks over a scheme to help borrowers that will cost the banks huge sums.
Meanwhile, there is concern in Western capitals that Orban is drifting into the orbit of Russian President Vladimir Putin.
In his four years in power, Orban's government has ordered an audit into civil society groups, has tightened state oversight over the media and slapped costly levies on foreign companies.
The European Union and the United States have voiced concerns that Orban, who made his name opposing Communist rule in the 1980s, has acquired too much power and is back-sliding on democracy.
Orban rejects those allegations. Most Hungarian voters supported him and his Fidesz party in April parliamentary elections: it won about 45 percent of the vote on party lists.
But that has left a minority of Hungarians, many of them liberal and pro-European, who dislike Orban's policies yet have been unable to challenge him at the ballot box.
Some Hungarian commentators have drawn parallels between Orban and Turkish President Tayyip Erdogan, who is supported by a majority of voters but faced protests earlier this year by the liberals whom he has defeated at the ballot box.
Orban said that the Internet tax plan was not being scrapped altogether. He told public radio the government would start consultations next year over internet regulation and potential ways to tax some of the revenue generated online.
The tax plan was not likely to have made a significant contribution to bringing down Hungary's budget deficit, which is anyway shrinking. Orban makes many policy decisions himself, and has a track record of coming out with radical initiatives with little or no consultation, say people who know him.
“Overall, the law was visibly flawed at several points, and it seemed ill-prepared. It was not an ideological question or a matter of big money," said Tamas Lanczi, chief of Hungary's Szazadveg Political Analysis Centre.
"When any government faces an angry population the best thing it can do is change course."
The tax protests set off an outpouring of deeper unhappiness with Orban's rule among liberal-leaning sections of Hungarian society.
"We are the people! And we the people have the right to rule the country," the movement that organized the anti-tax protests, called "100,000 against the Internet tax", said in a statement on Friday.
The crowd that gathered in front of the economy ministry on Tuesday evening chanted, alongside slogans about the Internet tax: "Orban should resign!"
Yet there is no direct challenge to Orban's rule. He has a two-thirds majority in parliament, there are no national elections for four years, and the Socialists, who were in government before Orban, are in a state of disarray.
Under the planned tax, Internet service providers would have paid 150 forints (60 US cents) per gigabyte of data traffic, though it would have also let companies offset corporate income tax against the new levy.
Protesters said they feared the telecoms and internet firms would pass the cost onto consumers. The government later said the tax would be capped at 700 forints for individuals and 5,000 for companies per month.
(Writing by Marton Dunai and Christian Lowe; Editing by Andrew Heavens)