A large volume of hot air
emanating from within Parliament was a likely contributor to Hungary’s
most-recent heatwave. Inside, politicians have again been racking their brains
over how the Hungarian patient can be helped. Many declarations were made, but
once again no actual concrete help was given. The gap between what is desirable
and what is achievable seems to be growing in Hungary.
Finance Minister János
Veres is gradually approaching top form in terms of how to reject tax cut
proposals in a creative manner: “There will be a reduction to taxes and
contributions in 2009 – but to what degree can only be established when the
half-yearly figures are known.” Such a remark should hardly be allowed to pass
just like that even coming from a government without a credibility problem.
Qualified statements by politicians always strike a dubious note. The
opposition in turn has outdone itself with ever more fantastic suggestions. The
best one had to be the Fidesz proposal to reduce the tax and contribution
burden by no less than HUF 1 trillion (EUR 4.13 billion) within two years. That
is a really impressive number, beside which even the flat-tax proposal of the
Hungarian Democratic Forum pales.
Economy Minister Gordon
Bajnai at a meeting with employer representatives at the end of May explained
that “broad economic and political consensus” is needed for Hungary to return
to a growth path. With amazing acuity, he also noted that the mood in Hungarian
companies is “not so good”. How reassuring that the economy minister is so
observant. His important findings are sure to help the discussion on growth.
Bajnai’s contribution was only bettered by Fidesz leader Viktor Orbán’s
repeated insistence that the departure of the current Socialist government is
the “only condition” for the revival of growth.
Condition more and more critical
increasingly resembles that of a visit by a group of doctors who stand around
the bed of the patient arguing about possible treatments. They are driven more
by the desire to show off their own knowledge than by concern for the wellbeing
of the sick man, despite the latter’s increasingly alarming symptoms. Even the
prospect of the best medicines seems not to help the patient get back on his
feet; the patient needs to try medicines, and not simply hear about them.
Instead there is only hot
air. Just occasionally the Hungarian patient and his supposed doctors
experience a frosty draught. On Monday, 26 May the central bank, for example,
to general displeasure implemented a key interest rate rise. A few days later
Moody’s considered further downgrading Hungary’s credit rating. The prospect of
Slovakia adopting the euro was just as coolly received in Hungary. The pressure
on doctors to act should be great enough, but nothing happens.
Physicians not healing themselves
Or rather, no action is
taken where it is actually needed. Hungary’s political actors have not been
entirely idle; however, in the given case that is regrettable rather than
welcome. At the end of May the two main parties, acting in consensus, buried
their plans for reorganising party financing. This highly sensitive field in
Hungary is known to be, quoting Hungarian Democratic Forum chairwoman Ibolya Dávid,
a “hotbed of corruption”. The fact that a study by Transparency International,
which, coincidentally, was released on the same day, pointed to stagnation in
the fight against corruption in Hungary fitted in exactly with the former
announcement, as did the comment by the director of the Hungarian branch of the
organisation that widespread corruption is becoming a “barrier to growth”.
Discounting such gaffes,
little action has been taken – at least, not on the political level. The situation
looks different when it comes to simple citizens, who appear to have had enough
of waiting passively for the revival of politics. They are adapting as well as
possible to the given circumstances, by excelling in tax evasion and acquiring
subsidies on false pretenses. Nor are they passive in the fight for public
contracts and coveted EU funds. Many, perhaps more noble, are simply leaving
Hungary in favour of countries with higher net earning possibilities. Hungary,
however, has kept its politicians – with the exception of a few migrants who
have headed for Brussels. And they still have Hungary as a stage for their
Making the rounds
It also serves as a stage
for their curiosity. At the meeting mentioned above Economy Minister Gordon
Bajnai expressed the desire to regularly meet movers and shakers in the world
of business in the coming weeks to consult with them on the “measures needed to
stimulate economic growth”. For years there has been no serious study on the
Hungarian economy which has not referred to the cripplingly high level of
contributions. Nevertheless, the newly appointed economy minister first needs
to be informed about the situation. But what will happen when there is no
longer recourse to the medicine cabinet, and all that is left is the laying on
of hands and taking the patient’s temperature?
Write the prescription into law
It should no longer be a
question that the excessive tax burden on employment needs to be reduced.
Politicians therefore need to rack their brains less over the “whether” than
the “how”, and specifically how the necessary tax and contributions reductions
can be financed. And here we come straight to the excessive social security
contributions which partly inhibit productivity, with only one in two working
age adults actually working.
This is the area where
the politicians need to take action. This is where they can develop genuine
room to unburden the economy in a sustainable way, or suffer some bruises. It
is likely that the politicians will prefer to stand whispering by the sickbed
for a little while longer, instead of curing the patient.