Finance Minister Mihaly Varga – Photo: MTI

Central bank, government advance in strategic alliance, in spite of differences

Finance minister says now not the time for budget cuts

Economic policy should be focused on supporting investments, creating jobs and recovering capacities lost to the crisis caused by the coronavirus pandemic, Hungary's finance minister said after a meeting with his Visegrad Group counterparts in Warsaw on Tuesday.

Now is not the time for contractionary measures, but for rebooting the economy, Mihaly Varga told an online press conference. Cutting support to economic players too soon would slow the pace of recovery, posing a risk to families, businesses and the economy as a whole, he added.

Even with economy protection measures accounting for almost 30 percent of GDP, Hungary’s budget deficit was around the European Union average, while the public debt level was significantly lower, Varga said.

The minister expressed concern over international proposals for the introduction of a global minimum tax, saying it posed a risk of global tax increases, while the original plan to tax tech giants could fall by the wayside.

Hungary’s stance on the proposal is clear, Varga said, noting that the country rejects any plan that would force it to raise taxes and hurt its competitiveness. Hungary’s 9 percent corporate tax rate brings in investments, he said, adding that a tax increase would hurt thousands of businesses and put jobs at risk.

In response to a question, Varga said Hungary was prepared to take part in the talks on the global minimum tax plan and believed that its partners could be persuaded not to eliminate tax competition.

Hungary will make its position known at OECD and EU forums, Varga said, adding that he had also discussed the proposal with his V4 counterparts on Tuesday as well as with the representative of Italy, which holds the presidency of the G20, at last week’s Ecofin meeting in Luxembourg.

As the incoming president of the Visegrad Group, Hungary is committed to continuing the work started by Poland and to strengthening the alliance, Varga said.

The minister said the Czech, Hungarian, Polish and Slovak economies had all contracted at a lower rate than the European Union average in 2020, adding that their output would be back at pre-pandemic levels this year.

Central bank, government advance in strategic alliance, in spite of differences

National Bank of Hungary (NBH) governor Gyorgy Matolcsy acknowledged differences between the central bank and the government over some issues, but said the sides continue to work together in a close strategic alliance at a press conference following a monthly policy meeting on Tuesday.

The National Bank of Hungary has until now planned its operation in very close cooperation together with the government and will do so in future, too, Matolcsy said.

“A very close strategic alliance has been formed between the government and the central bank … Both sides see this to be of great value,” he said.

Matolcsy said there could be differences in the assessment of economic trends in Hungary, adding, at the same time, that there was no disagreement that the central bank and the government move forward in a strategic alliance.

On Monday, Matolcsy warned that government overspending in 2022 could fuel inflation in a column published in national daily Magyar Nemzet.

Matolcsy wrote that he believes the 5.9 percent-of-GDP budget deficit target in the 2022 budget is “a mistake” and could set the country up for “persistently high inflation”.

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