taxes

Public patience is coming to an end: What can Viktor Orbán do? Not much

Some of you want me to outline a scenario that could follow the unheard-of loss of popularity of the government, Fidesz, and Viktor Orbán personally. I am no fortune teller but, contrary to those readers who believe that the events of the last two months will have no adverse effect on the Orbán government in the long run, I see some signs that may lead to the eventual collapse of the system.

I base this admittedly hedged forecast (note the “some” and “may” in it) on data suggesting that Viktor Orbán has lost the trust of millions of his followers. I understand from news reports that Orbán and the Fidesz leadership by now have come to recognize the seriousness of the situation. Apparently they are preparing the ground to rebuild the prime minister’s tarnished reputation. The word is that he is planning to be more “active,” which in this context means that he will show his compassionate side. Today he visited an orphanage and held one of the little girls in his lap. The picture was shown all over, of course.

But I think the situation in which the prime minister finds himself won’t be fixed by a few smiles and friendly gestures toward his constituency. He has lost the people’s trust. And for that development he alone is to blame.

ATV showed a short video today on which a journalist confronts people on the street and tells some of Orbán’s latest fairy tales about the decrease in poverty, the increase in job opportunities, the excellent GDP figures, and the reduced utility prices. First of all, a few months ago when journalists tried to engage people on the street in conversation about political issues most people either refused to answer or the few who did usually praised the government and Orbán. Today’s video shows that people are no longer afraid to speak, and when they speak they don’t hide their opinions. The most frequently recurring answer was: Orbán is lying! What he says is not true. If that belief takes hold among the electorate, Orbán’s political future is in doubt.

There is another problem that, in my opinion, will prevent Orbán’s political comeback–and we know that without him there is no Fidesz either. The coffers are empty. No longer can the government appease the populace by throwing a few thousand forints their way, as they did when they lowered utility prices, an admittedly brilliant political stroke. Today they cannot give anything. On the contrary, they have to extract more and more money from the people in the form of taxes because otherwise they cannot keep the deficit under 3%. And if they overstep this magic figure, the excessive deficit procedure may be imposed, and this may mean the loss of subsidies from Brussels. It is obvious that they are desperate. They know that they should not irritate the already antagonistic voters with more and more taxes, but they seem to have no choice because they already spent the money on all sorts of superfluous projects, like stadiums, MOL shares, bank purchases, and so on. And then there is the corruption that has resulted in the loss to the public purse of billions in taxpayer money. Their past irresponsible (and worse) financial maneuvers may well be their undoing.

Another consideration is what I see as an erosion within Fidesz-KDNP. I already mentioned the revolt of KDNP’s chief Zsolt Semjén on the issue of a new law on the status of churches. He was joined a few hours later by Rózsa Hoffmann, who in the past was a faithful executor of Viktor Orbán’s ideas on education. Suddenly Hoffmann discovered that diverting children from gymnasiums is a very bad idea and that making employees of the Prime Minister’s Office work ten hours a day is not even legal. Or, there is the case of János Bencsik, a Fidesz member of parliament since 1998, who expressed his strong opposition to compulsory drug testing of children. As he put it, not even László Trócsányi, minister of justice, or Gergely Gulyás, the legal wizard of Fidesz, could make such a law constitutional. Even Gulyás thought that Máté Kocsis’s suggestion was “unorthodox” while “the world of the law is generally orthodox.”

The latest attempt at acquiring another 20 billion forints by making M0, a six-lane highway that more or less encircles Budapest, a toll road enraged not only commuters from nearby towns but also the Fidesz mayors whose districts would be affected by the decision. Again it was a last-minute ad hoc decision without any consultation. The mayors are not the only ones up in arms. Attila Chickán, minister of the economy in the first Orbán government, said that the decision will have a negative impact on the lifestyle of the people of Budapest.

The M0 will be a toll road Are these people tired of governing?

Highway M0 will also be a toll road.
Are these people tired of governing?

And finally, young until now pro-Fidesz journalists have become disillusioned. Perhaps the best example I can cite is Ákos Balogh, editor-in-chief of Mandiner. I highly recommend his opinion piece that appeared today. The title is telling: “When ‘The Anything is Possible’ Ends.” Everything that worked in the past no longer works or, even worse, is counterproductive. In fact, Balogh goes so far as to state that the Orbán government, instead of remedying the “mistakes” of the last twenty years, itself became part of it. It did not finish the regime change as it promised but “it completed its failure.” Fidesz is good at campaigning but “sparkles less when it comes to governing.” Fidesz does not want to recognize that “something has changed,” and not only in foreign affairs as a result of the Ukrainian developments but also at home. Although “in theory” there will be no elections until 2018, “a government can be demobilized by broken public trust.” The lesson: “There is never such a thing as ‘Anything is Possible’ because there is always a fault line after which everything falls apart.” “The borders of  ‘Anything is Possible’ are not sharp, one can only conjecture about them. One can know only after the fact when someone has overstepped them. Perhaps he already has overstepped them.” Harsh words from a former true believer.

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.