Procreation and pensions in Hungary

In the last month or so article after article appeared about the conclusions of a group of economists and demographers who have been discussing possible solutions to the interrelated problems of the low Hungarian birthrate and the eventual depletion of the state pension fund. This group, the Népesedési Kerekasztal (Demographic round table), seems to have the support of the Orbán government. It is deeply conservative and a promoter of family values.

One of the most vocal proponents of pension reform among the group is Katalin Botos, an economist who was a member of parliament between 1990 and 1994 and also served as minister without portfolio in charge of the banking sector in the Antall government. Prior to the change of regime she was a department head in the Ministry of Finance (1971-1987). Lately, she has been teaching economics at various universities.

The Hungarian media acts as if this is the first time the public has heard about the outlandish plans of Katalin Botos. But in May 2012 Népszava ran the following headline: “One must give birth for one’s pension.” At that time Katalin Botos and her husband József Botos were active in the Working Group for a Family Friendly Hungary, which was organized under the aegis of the Ministry of Hungarian Economy. The study that appeared at that time was entitled “A középosztály gyermekvállalási forradalma” (The revolution of childbearing of the middle classes). In it, the Botoses explained the logic behind the introduction of a sliding scale of pension payments depending on the number of children. After all, pensions are being paid by current wage earners, and if a couple did not produce at least two children they are freeloaders.

At that time the group made calculations on the basis of 2010 maximum, minimum, and average salaries and came to the conclusion that an employee earning an average salary would get 14.4 points but only if he/she produced at least two children. Extra points would be earned for each additional child. On the other hand, employees with one or no child would be docked a certain number of points. According to this system, someone with an average salary of 113,000 forints with no children would receive a pension of 70,000 forints while a person with four children would get 142,000!

The more the merrier

Members of the working group did address the problem of couples who cannot have children for physical reasons but somewhat heartlessly remarked that “the fact still is that there is no one behind them who is responsible for their pensions.”

When this study was made public the vast majority of experts found the scheme unacceptable and ineffectual. To hope for a higher birthrate by linking it to higher pensions thirty or forty years later is totally unrealistic.

The public reception was anything but friendly, and the government promptly announced that they have no intention of introducing it in the near future. But, as we can see, this plan has remained on the government’s agenda because the latest scheme released by the Demographic Round Table is practically the same as the one in 2012. The few additions to the new report in fact make it even less attractive.

As far as the government was concerned, the original Botos plan had one huge flaw: in the Roma population families are large and girls begin to reproduce early. Surely, the argument went, you don’t want to encourage them with a pension system that might increase family sizes. So, an additional restriction was added: only children who finished high school (matriculation) or trade school would count. Not surprisingly, this was considered by critics of the plan as anti-Roma.

This time around the authors of the scheme also addressed details that were not considered in the 2012 version. For example, a person whose child died before he could finish high school would be exempt. The same would be true of children with a mental disability. But many questions remain. What will happen to young people who decide to work abroad? Will their departure be accompanied by a drastically reduced pension for their parents?

Although the plan was fleshed out a bit, by and large the “mad” scheme, as many commentators called it, remained intact.

Across the whole spectrum of the Hungarian media the reaction was uniformly negative. And real panic set in when Péter Harrach, leader of the Christian Democratic parliamentary delegation, announced that the report of the Demographic Round Table was in line with the thinking of the government and therefore there was a good possibility that the suggestions will be adopted, perhaps as early as September.

This was unfortunate from the government’s point of view. Right before the municipal elections such an announcement could have disastrous consequences, especially among those under the age of 35 whose pensions would be directly affected by the new law. Mihály Varga, minister of national economy, quickly reassured the voters after Harrach’s unfortunate interview that “it will not be necessary to have more children for higher pensions.” The Hungarian pension system is stable and there is no need to make any changes before 2030. But then why all the talk about a scheme that has been on the table for at least two years?

Well-known experts on the pension system, like György Németh, are convinced that the entire economic framework that lies behind the Botos couple’s scheme is wrong. In fact, in Németh’s opinion, it is unacceptable. Raising the birthrate is desirable, but it can be achieved only by the introduction of government measures that lower the expenses of child rearing. Compensation forty years down the road for the heavy financial burden of bringing up children today will not achieve anything. It is no coincidence that this interview appeared in Magyar Nemzet.

I would like to believe that this madcap idea will not be adopted, but I have a strong suspicion that in spite of Varga’s assurances to the contrary something is afoot. I would not be at all surprised if within a few months parliament passes a law that links procreation with pensions. If such law is passed, even more people will leave Hungary and settle elsewhere where the state does not interfere in their private lives. Oh well, at least the state won’t have to worry about their pensions.

The first draft of a “party program” of the Hungarian democratic opposition. Part II

Yesterday when I left off I was talking about the opposition’s concern over the very low Hungarian birthrate, which is resulting in a steadily aging population. At the moment the Orbán government is discussing a scheme by which every woman over the age of 18 who gives birth to her first child would receive a sizable amount of money–the most often heard figure is 300,000 forints–in addition to a flexible scheduling of the subsidies already given to women after childbirth. Most people don’t think that this scheme would make families rush to have children given the current economic situation. As I mentioned, the democratic opposition doesn’t have any better ideas on the subject except that they want to put an end to the current unfair distinction between legally married and unmarried couples who have children. In addition, they promise to put an end to child hunger.

Naturally, they pay a great deal of attention to the welfare of the large population over the age of 65. They promise not only to raise pensions to match the rate of inflation; they also plan to reintroduce a “premium” that would be indexed to economic growth. They make a renewed promise of free public transportation to everyone over the age of 65. They would also again allow pensioners to work while drawing their pensions and would allow people to work beyond the retirement age. Out of these promises the only one I object to is free public transportation for everybody over the age of 65. I think that forcible retirement is untenable in a democratic society and that in certain professions it is outright injurious to the public interest. I am thinking of judges and university professors, for example.

The next topic of the provisional party program is healthcare, and I must say that it is one of the weakest points of the program. Here we have only vague generalities. I understand, however, from a television interview that the hospitals would remain in state hands and that the new government would stick with a single centralized state insurance system. Only yesterday I was listening to an interview with Erzsébet Pusztai (earlier MDF, now a member of Lajos Bokros’s conservative party) who was won over to the idea of privatizing healthcare. What does she mean by that? Basically, that doctors would be the owners of their own practices. Having doctors as state employees guarantees failure, she contends. I tend to agree with her. Therefore I don’t expect any great positive change in the quality of Hungarian healthcare as a result of a change of government. In the first place there is no money to raise salaries and, even if they did, the problem lies not only with low salaries but with attitudes.

The MSZP and Együtt 2014-PM negotiating teams / MTI, Photo Lajos Soós

Naturally, the democratic opposition wants to put an end to the Kulturkampf introduced by the Orbán government and they make all sorts of promises of state subsidies to make culture readily available. As for the state of the media and the media law, which they surely want to change, they said nothing about MTV, MR, and Duna TV. I’m afraid that these organizations would need a complete change of personnel; otherwise the new government will end up with a far-right state media of low quality.

The Internet wasn’t left off the list either. They promise to pay special attention to making broadband available everywhere in the country and to encourage Internet usage and computer literacy.

These two parties at least don’t want to take away the voting rights of the new Hungarian citizens from Romania, Ukraine, and Serbia. The reason I didn’t include Slovakia here is that Slovakia introduced legislation that forbids dual citizenship and therefore there were very few people who applied for Hungarian citizenship and, if they did, it was in secret. I personally wouldn’t support that right and from what I read on the subject a lot of people would vote along with me on that issue. The document does make special mention of the democratic forces’ opposition “to the use of  the Hungarian minorities in the neighboring countries as instruments of Hungarian political parties,” but as long as voting rights are ensured there is no way of preventing party politics from spilling over the borders. On that issue, I’m with Ferenc Gyurcsány’s Demokratikus Koalíció.

Finally, the democratic opposition pledges its support of European values and Euro-Atlantic cooperation. They realize the changing nature of the European Union, but Hungarian national interests must be protected in cooperation with and not against the European Union. Hungary wants to be a partner in the building of a stronger and better European Union.

* * *

Commentators, on the whole, responded positively to the beneficial effects of the joint declarations and the parties’ willingness to work together. Most of them think that once the first step toward an electoral alliance is taken the number of undecided voters will drop and support for the opposition will increase.

In addition to this document the opposition came out with another one that deals with the nomination of MP candidates. I will spend some time on that document in the future, but until then suffice it to say that this particular document pretty well ensures that there will be a single common party list, which is an absolute prerequisite for any success against Fidesz at the next election.

Breaking News: Sándor Csányi, CEO of OTP, the largest Hungarian bank and the premier holder of Forex mortgages, dumped almost 2 million shares yesterday, allegedly to invest in his other businesses. OTP stock has been under pressure recently as a result of rumors about a new government scheme to help the approximately 100,000 people who are currently incapable of repaying their Forex loans. This generous assistance would come at the expense of the banks. Since details of the plan are unavailable, we don’t know how large a haircut the banks would have to take, but the hit might be substantial. I guess that Csányi, who by the way has been a big supporter of the prime minister, decided to bail while he still had some equity left. In the wake of his mega-sale (and I assume that sooner or later we’ll find out who was on the other side of that block trade–again, rumors are flying), OTP stock lost about 9% today.