Another austerity package: The eleventh since the Orbán government took office

The online newspaper Stop warned on May 29, after the news broke that the European Commission would recommend to the Economic and Financial Affairs Council (Ecofin) of the EU that the excessive deficit procedure against Hungary be lifted, that “Brussels is still watching.” Well, it seems that they didn’t watch closely enough. Here we are three weeks after the news so loudly trumpeted by the Hungarian government as a huge victory for its sound economic policies. And it appears that the great planners of the economy in the Ministry of National Economics realized, perhaps with some help from Brussels, that after all the numbers don’t add up.

In today’s Hungarian edition of Portfolio one of the headlines reads: “Surprising austerity package was announced by Varga: Tax hikes are coming.” I don’t know why the financial reporters of Portfolio are surprised. I think it was predictable, given the economic climate in the country, that the deficit was unlikely to be kept under 3% this year. And if it isn’t, Hungary could easily end up being under excessive deficit procedure again in no time.

There was another headline that caught my eye. According to HVG, financial analysts cannot agree on whether this latest austerity package was really necessary. The “expert” from TakarékBank claims that this step was unnecessary and only shakes investor confidence in a more predictable economic policy that everybody was hoping for after the departure of György Matolcsy. His colleague at BudaCash, on the other hand, detected a one hundred billion forint shortfall because only half of the anticipated revenues from the new taxes actually reached the treasury.

I was also fairly amused when I discovered that a Hungarian-language blog awarded Mihály Varga the Pinocchio Prize. At first I thought that awarding this “prize” to the minister of economics was a response to his announcement of the new tax hikes, but I soon discovered that the article was posted at 8 o’clock in the morning whereas Varga’s press conference announcing the new taxes took place only two hours later. The blogger was talking about the exaggerated descriptions of a booming economy very much in the style of György Matolcsy. As several newspapers said, the Hungarian population is still supposed to believe the government “fairy tale.”

Did the government have to adjust the budget again? Was it necessary? You can bet your bottom dollar that it was necessary. Let’s not forget that Ecofin will reach its final decision on the excessive deficit procedure two days from now, on June 19. I wouldn’t be at all surprised if we found out that the Hungarian government received word from Brussels that the figures they submitted didn’t quite add up. Now the only question is whether this last-minute scramble for additional funds will satisfy Brussels’ demands for an economic policy that ensures sustainable economic growth. Or whether they will change their minds, claiming that these periodic adjustments are no remedy for Hungary’s economic ills. In fact, they exacerbate them. One could argue that the very heavy taxation imposed on both consumers and companies may lead the country back into recession.

Here are the main points of the package: (1) a hike of the financial transaction tax (FTT) rate on non-cash transactions to 0.3% from 0.2%; (2) an increase in the FTT rate on cash transactions to 0.6% from 0.3%; (3) an increase in the telecom tax to HUF 3 from HUF 2 per minute or per SMS and a higher cap for corporations from HUF 2,500 to HUF 5,000 per month; (4) an increase in the mining royalty fee to 16% from 12%; (5) a 6% health care contribution to be paid on interest and capital gains; (6) and, what Varga forgot to mention in his press conference, banks will have to pay a 7% tax on the amount of their loans to the municipalities that the national government took over. The rationale? The state is a more reliable borrower than the municipalities. So, the “reliable customer” will not pay back what he owes in full! What can one say?

There are some who have plenty to say. LMP announced that Varga’s economic policy is not one whit more reliable than Matolcsy’s. Its spokesman Gábor Vágó emphasized the need for a total economic turnabout. Együtt PM called attention to the fact that a week ago Varga still claimed that the budget’s cardinal numbers were solid and needed no adjustment. There is still something very wrong with the Ministry of Economics.

The blog that handed the Pinocchio Prize to Varga  published an estimated total of the ten “packages” since the Orbán government took over. They arrived at 3 trillion forints. This last package, the eleventh, is also quite large. Experts estimate it at anywhere between 100 and 200 billion forints.

Estimated amounts of austerity measures (2010-2012)

Estimated amounts of austerity measures (2010-2012)

The forint survived the announcement relatively well. It is still hovering around 291 to a euro. Unfortunately the BUX (the Budapest Stock Market) did not fare as well, with heavy telecom and banking (OTP) losses.

When Varga took over the ministry he indicated that perhaps the government will stop some very expensive and not urgently needed projects such as soccer stadiums and refurbishing the square in front of the parliament. But soon enough it became clear that for Viktor Orbán these mega-projects that symbolize the greatness of his regime are far too important. The government would rather introduce new taxes to pay for his pet projects. Especially if on Wednesday Hungary is released from bondage by Ecofin. In fact, there is speculation that the government never seriously thought of abandoning these “prestige projects.” It was only a ploy to show the EU that the Hungarian government is even willing to sacrifice stadiums on the altar of economic stability.

I predict that this is not the end of the austerity measures. I wouldn’t be at all surprised if within a few months, most likely well before the end of the year, there is another announcement about new taxes. This time to avoid being returned to the group under excessive deficit procedure.

Advertisements

37 comments

  1. The whole of Kossuth Ter and surrounding streets is now a massive, and busy building site. They are working very very hard on it. As are Ferenciek Tere and the streets around that.

    Meanwhile, if you go in the underpass beneath Ferenciek Tere, it has changed into a big centre for homeless people. Tens of people in sleeping bags huddled in there in the corners. Several shops in Rakoczi ut have now been closed down and empty for months or more. Next to me, a bakery which had been in business since 1957 just closed its doors on the weekend. There is just a sad handwritten sign saying 1957-2013.

    In my street, they started digging holes to put six new trees in – possibly as part of an EU-funded rejuvenation project. But since March, the holes are still there – with soil spilling out of the cracked road. And the road hasn’t been cleaned for well over a year. People use it for the dogs.

    And inside our flat, last month, someone stole the mirror which used to be inside the elevator.

  2. The natural reaction of people will be to move savings abroad, where one can withdraw them without the 0.6% penalty. But moving electronically before August 1 will result in a 0.2% fee in any case. So government revenue will spike in July then fall from August.

  3. I’ve already written on the other current thread:

    This is an incentive to keep your savings in €s and do your shopping in Austria (or Slovakia, Slovenia – many Tescos just across the border …)

    And the new Telecom tax: “Varga said the rate of the telecom tax will be raised to HUF 3 per minute”

    Well, calling friends or family from Germany to a Hungarian landline costs me ONE cent per minute …

    Unbelievable!

  4. Totally OT (or not ?) but really interesting:
    http://maxdunbar.wordpress.com/2013/05/04/this-other-england-the-inevitable-ukip-post/
    On UKIP and its followers.

    The article claims that most of them are old people who think that the only good thing about Britain is its past – Sounds familiar somehow ?

    PS:

    I know – we have them too in Germany and other countries, but they’re a much smaller minority – although I’m not so sure about East Germany, sigh …

  5. Eva: These were very sad to watch. Mesterházy’s every sentence seems calculated. He obviously knows that he shouldn’t be the candidate for PM but he wants to ask for the highest price he can get. Understandable? Maybe, from his point of view. Power play, power play, power play. This is going to be 4 more years of OV.

  6. Just watch how both of them keep on talking about their voters claiming to clearly know what they want. I think these guys have no idea about what they are talking. When Gyurcsány claimed that the voters want cooperation therefore DK can’t be left out, I laughed out loud. Regardless of what one thinks of GYF in general, he should also check the polls sometimes. (Of course he does, he can’t say anything else. But it still comes out funny.) Otherwise he had a few good points in this one.

  7. OT, but relating to previous posts:

    This is the link Fideszniks are sending each other on FB.

    http://mno.hu/belfold/gyurcsany-vonuljon-vissza-es-keresse-tovabb-szakdolgozatat-1167335

    My Hungarian is far too poor to understand what Gy is saying in the clip, but to Fidesz supporters it is apparently hilariously funny.

    I’d appreciate it if someone could enlighten me on all this – what exactly did Gy say to upset the ‘Christian’ right so much, and what is supposed to be funny about this clip? It must be pretty good because the Orbániszta are brandishing it everywhere as proof that Gy has finally lost it.

  8. The long term negative impact on these incremental taxes will not be felt by people on the street before the election. The HUF Fx rate will be driven by external factors (totally out of control of politicians) and the market’s demand for Hungarian fixed income assets. As Government policy is focused solely on escaping the EDP and lowering external indebtedness, and the bond market wants to see Hungarian deficits under control and does not care about long term economic growth, the HUF is not likely to suffer too much from these one off taxes in short term.
    As for the opposition, I have made this point in the past. Sadly, the opposition is more interested in their own internecine battles than winning the election.
    Yet one more bad day for Hungary. Hard to keep count on how many of those days we have experienced.

  9. Here is an estimate of the effect of the new taxes on the average guy by a professional journal:

    http://www.bankmonitor.hu/content/1096.htm

    The average customer has 150K monthly net income and 750K in savings.

    The January taxes took away 3,800 HUF more of her/his money (2.5% of the monthly income)

    The new taxes add another 4,700 HUF (another 3.1%)

    So the effect of the 2013 tax hikes combined is 5.6% of the monthly income.

  10. tappanch :
    Here is an estimate of the effect of the new taxes on the average guy by a professional journal:
    http://www.bankmonitor.hu/content/1096.htm
    The average customer has 150K monthly net income and 750K in savings.
    The January taxes took away 3,800 HUF more of her/his money (2.5% of the monthly income)
    The new taxes add another 4,700 HUF (another 3.1%)
    So the effect of the 2013 tax hikes combined is 5.6% of the monthly income.

  11. This is what I like about averages, they lie not because they are the wrong but the are a completely inappropriate measure of reality. 150K salary with 750K in savings? That is 5 months worth of burn in the bank on average on a 150K salary. I seriously doubt this is the case as most people do *not* even have 3 months of burn in the bank. Does this number include what Simicska has in the bank? How people can report on average alone is beyond me.

  12. LwiiH :
    This is what I like about averages, they lie not because they are the wrong but the are a completely inappropriate measure of reality. 150K salary with 750K in savings? That is 5 months worth of burn in the bank on average on a 150K salary. I seriously doubt this is the case as most people do *not* even have 3 months of burn in the bank. Does this number include what Simicska has in the bank? How people can report on average alone is beyond me.

    I tend to agree with LwiiH. It does not seem right to me. I think in this case they should of use the mode versus the mean.

  13. I quoted this somewhere, but can’t find it again – sorry.

    A survey (by Median ?) claims that more than 50 % of Hungarians can just pay their bills and live on the money they earn – without any reserves. Some even don’t earn enough to make ends meet and many have no savings at all.

    PS:

    I thought it was on portfolio.hu last week but I really can’t find it anymore …

  14. LwiiH :
    This is what I like about averages, they lie not because they are the wrong but the are a completely inappropriate measure of reality. 150K salary with 750K in savings? That is 5 months worth of burn in the bank on average on a 150K salary. I seriously doubt this is the case as most people do *not* even have 3 months of burn in the bank. Does this number include what Simicska has in the bank? How people can report on average alone is beyond me.

    These numbers all refer to the average customer of banks. Most people would have a bank account, but not necessarily everybody (e.g homeless people probably won’t have one). It is also not clear what they mean by “average savings”…. maybe this is the average amount that is on savings accounts in the banks… so it would only include those who have some kind of savings. So it is not the average savings of a Hungarian household, as those people are not included who don’t have any savings.

  15. re Horthy Cult And the Naming of Streets After Anti-Semitic Writers

    We’ve seemed to have passed this topic by some time ago but I have something to say on it. After some thought, I now realize why I am so disgusted by Orban, by Fidesz, and indeed, the whole Hungarian society that tolerates all this with a shrug of a shoulder.

    Perhaps it was reading Livia-Bitton Jackson’s, “I Have Lived a Thousand Years” which is a memoir of the authors removal from a Hungarian town at the age of 13 in 1944–the whole gradual stripping of rights and properties of jews–and shipping the family to Auschwitz.

    Now this book is not really for Hungarian jews to read, but for the goyim. And there are countless books like this. And, if the ‘heroic’ Hungarian goy does not trust jewish writing, well there are the countless number of eyewitness accounts by German guards of the various camps.

    So, why haven’t read these books? If you truly wanted to combat anti-semitism, why not introduce these books in the schools?

    Fact is, they’re little read by the Hungarian cognoscenti. Because…if they were, the sin of allowing the Horthy cult and the naming of streets and squares after people who fomented anti-jewish hatred would be palpable. In other words, we have the ‘proof’ of what those anti-semitic writings led to….so,
    how could, after just 65 years, these sentiments be aroused again?

    What sort of society is this in Hungary?
    Do the people have no shame?
    What do Hungarians have to be proud of, especially when they, from all European countries, seek a replay of the horror that has gone before?

  16. Paul :
    OT, but relating to previous posts:
    This is the link Fideszniks are sending each other on FB.
    http://mno.hu/belfold/gyurcsany-vonuljon-vissza-es-keresse-tovabb-szakdolgozatat-1167335
    My Hungarian is far too poor to understand what Gy is saying in the clip, but to Fidesz supporters it is apparently hilariously funny.
    I’d appreciate it if someone could enlighten me on all this – what exactly did Gy say to upset the ‘Christian’ right so much, and what is supposed to be funny about this clip? It must be pretty good because the Orbániszta are brandishing it everywhere as proof that Gy has finally lost it.

    WARNING: I am no computer expert, but the reaction when I tried to open this link suggests there is a virus of some kind. (Problemereignisname: Bluescreen)

    So I can’t enlighten you on what is in the clip, but in the speech from Sunday he was swearing a lot, as angry as I’ve never seen him speaking before (such a gifted speaker, it is really a shame Fidesz managed to damage his reputation so badly). What I understood about the churches was that they should be the ones who tell and show people that yes, you can stand up for yourself, stand up against injustice … – what a preposterous thing! 😉

  17. Takarékbank “analysts” are government propagandists. Takarékbank was nationalized (the German majority owner was given an offer it could not refuse) recently and employs people who will say what their bosses at the prime minister’s office tell them to say. Same with Százedvég and other “think tanks”. Just propaganda tailored to various segments.

    GDP will almost surely decrease even if the agriculture will have a bumper year (especailly given that last year was really bad, the growth in agriculture can be 1% of the GDP, perhaps enough to more or less off set the decrease in other sectors).

  18. @Paul, Maria: It was a little stronger than that… he accused some churches of licking Orban’s boots (only he used a much stronger and vulgar expression) and reminded them that they cannot serve two lords (God and political power) at the same time. He was not mentioning any church or KDNP by name.

  19. An :

    LwiiH :
    This is what I like about averages, they lie not because they are the wrong but the are a completely inappropriate measure of reality. 150K salary with 750K in savings? That is 5 months worth of burn in the bank on average on a 150K salary. I seriously doubt this is the case as most people do *not* even have 3 months of burn in the bank. Does this number include what Simicska has in the bank? How people can report on average alone is beyond me.

    These numbers all refer to the average customer of banks. Most people would have a bank account, but not necessarily everybody (e.g homeless people probably won’t have one). It is also not clear what they mean by “average savings”…. maybe this is the average amount that is on savings accounts in the banks… so it would only include those who have some kind of savings. So it is not the average savings of a Hungarian household, as those people are not included who don’t have any savings.

    This is why the Hungarian government always comes up wit the beautiful numbers of a growing economy. Let’s face it none of us really know what those numbers really mean. A rose is a rose is a rose.

  20. OT: Now that Orban have his own stadium, and he is moving into his Castle, the only thing left is to get him his own plane. Not to worry, the news was announced today that Orban will get his Air Force One. (I give one year before there will be a helicopter landing will be put in the Buda Castle.)

  21. OT: Google Street has not photographed the streets on the Vár, only just up to it. Censorship? Secrecy?

  22. Maria and An – thank you for your comments.

    Why does Gy open himself up like this? He, of all people, must know what Fidesz are going to do with footage of him swearing. The Fideszniks on FB were going mad with delight at yet another Gy own goal. For a supposedly intelligent man, with so much political experience, he behaves unbelievable stupidly at times.

    As for the virus warning, I have no idea why you’re getting that. My PC is fully protected and I get nothing – and there is no reason for this particular link to be infected in any way. I would imagine it’s almost certainly the anti-virus software on your PC finding a ‘false positive’.

  23. @Paul – The thing is he is not that intelligent and doesn’t have much political experience. True, he was prime minister for a while. The result was he destroyed his own party and handed the opposition a two-thirds majority. He’s a bit of a dim wit really, a man who married into an oligarch, became rich, and, sadly for the Hungarian left, has time to get involved in politics.

  24. Dan :

    @Paul – The thing is he is not that intelligent and doesn’t have much political experience. True, he was prime minister for a while. The result was he destroyed his own party and handed the opposition a two-thirds majority. He’s a bit of a dim wit really, a man who married into an oligarch, became rich, and, sadly for the Hungarian left, has time to get involved in politics.

    Dan, just let’s stick to the facts. He didn’t marry an oligarch. He was a rich man when he met his third wife, Klára Dobrev who wasn’t rich but was the granddaughter of a communist apparatchik who by the late Kádár regime had been put on ice. He is anything but a dimwit. You perhaps should find some of his lectures on economics delivered at Corvinus while he was prime minister. You will be surprised. He talked without notes for a good hour and a half with great clarity.

  25. @Paul: Disagreeing with Dan, who was just giving us the much propagated Fidesz portrait of Gyurcsany… it’s not that he is not intelligent, he seems to be one of the very few people who see very clearly what Orban and Fidesz is. I also believe he is an idealist and well-meaning, but way too emotional, hence the cursing and the very visible frustration that makes him a target of mockery. He is not thinking about what he is saying, as he is an idealist (unlike Orban who is calculating, and unlike the calculating evil the Fidesz propaganda likes to paint him), but his careless “I say what I think” attitude gives ample ammunition for those who want to mock and vilify him.

    He is a not good politician, in the usual sense of the word, as he does not want to play the “let’s say things that will maximize votes” game. At least he is not willing to play that game anymore (that was his whole Oszod speech about). His mistake is, I think, that this is not an “either-or” proposition, that is you, as a politician, either mislead and lie to people, or say whatever you think is true in whatever shape or form that comes to your mind. You can be truthful and be a little mindful of the possible reactions to your words at least to the extent that you don’t alienate or offend some people who’d otherwise may agree with your message.

  26. Eva S. Balogh :

    Dan :
    @Paul – The thing is he is not that intelligent and doesn’t have much political experience. True, he was prime minister for a while. The result was he destroyed his own party and handed the opposition a two-thirds majority. He’s a bit of a dim wit really, a man who married into an oligarch, became rich, and, sadly for the Hungarian left, has time to get involved in politics.

    Dan, just let’s stick to the facts. He didn’t marry an oligarch. He was a rich man when he met his third wife, Klára Dobrev who wasn’t rich but was the granddaughter of a communist apparatchik who by the late Kádár regime had been put on ice. He is anything but a dimwit. You perhaps should find some of his lectures on economics delivered at Corvinus while he was prime minister. You will be surprised. He talked without notes for a good hour and a half with great clarity.

    Contrary to Orban who came from humble beginnings and became a very rich man not because he married rich but because he ripped off the Hungarian taxpayers. Maybe Dan should look into the Orban quarry, the vineyard for his wife in Tokaj and so forth. I think his family did really well since the takeover. You can read on the subject in one of Eva’s earlier posts: https://hungarianspectrum.wordpress.com/2011/12/03/the-orban-family-and-corruption/

  27. Paul :
    This is the link Fideszniks are sending each other on FB.
    http://mno.hu/belfold/gyurcsany-vonuljon-vissza-es-keresse-tovabb-szakdolgozatat-1167335
    My Hungarian is far too poor to understand what Gy is saying in the clip, but to Fidesz supporters it is apparently hilariously funny.
    I’d appreciate it if someone could enlighten me on all this – what exactly did Gy say to upset the ‘Christian’ right so much, and what is supposed to be funny about this clip? It must be pretty good because the Orbániszta are brandishing it everywhere as proof that Gy has finally lost it.

    The clip is terrific. The words are passionate, heart-felt, and true, and needed to be said. It is couched in an off-colour language, but that is apposite too, because it was for that language that he was viciously pilloried by Fidesz FUD, and he is right to shove that back in their faces too. If Fideszniks think there is anything false in this clip, it is because they have already been so programmed into Newspeak, where good means bad, and false means true. And all they have ears for is off-colour language anyway, not content, or what’s really right and wrong. As for the “Christians” and the “patriots,” I think Gyurcsany quite brilliantly points out the deep dividing line between the righteous ones and the self-righteous hypocrites that wrap every Fidesz misdeed in superficial jingoistic sanctimony.
    The rage he is expressing is the rage every decent Hungarian — indeed every decent person — must feel about the sordid, pestilential force into whose grip Hungary has fallen. No language is strong enough to express the revulsion this must awaken in those who have not sold out and are not in the thrall of calculated, systematic demagoguery.

  28. Thank you, Stevan for that very clear statement!

    When I read what the Fidesz henchmen are producing, I feel like I’m reading Orwell …

  29. I keep wondering, how the mindless hordes of Fidesz supporters who actually signed (up?) the lists about the -10% of utility costs, feel about being duped so shamelessly – again – of their Lord and Master…

    Or the evergreen “its all Gyurcsány’s fault” mantra still has such hypnotic effect that they will follow Orbán at any price?

    That price getting higher by the minute, so, its a rather costly passion as I see it, but hey, this is Hungary, they can afford it, obviously..!

  30. The Mafia government needs money to pay the stupid people at the end of the year and buy their vote. All employees, whose job depends on the Fidesz/KDNP/Jobbik criminals are getting “rewards” carving in their mind, that their lives depend on the victor’s goodwill. Same recipe as Mussolini’s. A divided society, where the idiots, the believers, the weak minded, the meek and immoral people, those who sell their souls will be the staunch supporters of the viktor and his corrupt to the bone, cruel, inhumane thieves. They are liars, cheaters, Mafia hoodlums, they make up the so called government. Hungary is about the same as Uganda was during Idi Amin today on the moral scale, it has NONE!

Comments are closed.