Gulyas: Government approves 3.9 percent pension top-up

The 5 percent pension increase approved at the beginning of the year had been based on market expectations and the forecasts of foreign and domestic analysts, Gergely Gulyas told a regular government press briefing. However, based on current projections and data from the finance ministry and the central bank, the government now believes that an annual inflation rate of 8.9 percent is more realistic, he added, noting that the war in Ukraine was creating a high level of uncertainty.

The government is required by law to compensate pensioners in November if inflation exceeds the rate of pension increases, Gulyas noted. But because of the significant difference between current inflation forecasts and the original pension hike, a quicker pension increase is warranted, he added.

Therefore, pensions will rise by a further 3.9 percent from the beginning of July, he said, adding that the inflation-linked increase would be paid retroactively from the start of the year.

Gulyas also said that the war in Ukraine was causing prices in Europe to soar, noting that rising energy prices were affecting all other prices. As market prices rise, so does the significance of the government-imposed price caps, he said.

Gulyas said government measures to control prices had cut inflation by over 5 percent. Financial experts agree that without the government-imposed price caps, inflation would be over 13 percent instead of the current rate of 8.5 percent, he said.

He noted that Prime Minister Viktor Orban on Wednesday announced that the government was extending the caps on fuel and some staple foods until July 1.

Hungary’s government is under pressure to let prices rise, Gulyas said, adding that the government would continue to review the feasibility of prolonging the price caps as long as it could and as long as the country’s oil and gas supplies were secure.

In the current situation, the government has to prioritise the protection of families over market logic, Gulyas said.

He said it was western European, US and Arab oil companies that were profiting off of the soaring prices in western Europe. They are the real winners of the war because while the costs of oil extraction have not changed, prices have skyrocketed, Gulyas argued.

Meanwhile, Gulyas said the government had reviewed the European Commission’s letter activating the so-called conditionality mechanism linking European Union funding to the rule of law, and saw no obstacles to signing the agreement on the bloc’s Recovery and Resilient Facility (RRF) funding.

Gulyas said there were certain areas on which the government would not compromise, which he said was an obligation dictated by the outcome of the recent parliamentary election. Those issues include the aim for Hungary to stay out of the war in Ukraine, its decision not to send weapons or soldiers to its north-eastern neighbour and the position that Hungary will not allow the Hungarian people to be made to pay the price of war, he said.

In connection with the EC’s letter, Gulyas said the issues it raised were all issues that “we have been negotiating on with the Commission for months”.

“There is no issue on which we do not have a shared position or on which we couldn’t find a solution acceptable to both our government and the Commission,” Gulyas said.

He also noted that Wednesday’s cabinet meeting had been the last one before the current government’s mandate expires following the inaugural meeting of the new parliament convened for May 2. Until the new government is sworn in, the current one will continue as a caretaker government, he noted.

In response to a question, the prime minister’s chief of staff said Hungary’s health-care system was open to caring for injured Ukrainian soldiers without limit.
Commenting on a pro-Russian protest planned to be held in Budapest, Gergely Gulyas said Hungary condemned Russian aggression against Ukraine. At the same time, in the spirit of classical liberalism, Hungarian law since 1990 has protected the right of assembly except in cases of extremism, he added.

He called the US and NATO position on avoiding any direct conflict with Russia “a wise one”, and Hungary, he added, shared same position. “No one wants a third world war.”

Commenting on Hungary being the first country in Europe to approve Gazprom’s request to amend its contract with the company on gas deliveries, he said Hungary had been open and above-board about it, unlike other countries “quietly doing the same”.

He said it was “impossible” for the country to replace Russian natural gas from other sources and it would be “difficult and expensive” to wean itself off Russian crude oil. Gas interconnectors with neighbouring countries which have undergone major developments since 2010 are all supplied with Russian gas, he added.

“We’d be delighted not to have to buy Russian gas if other sources were available at the same price,” he said, adding that alternative sources would be several times more expensive and in insufficient volumes.

The government plans to refill gas stores in the coming period, he said, adding that Hungary was currently receiving Russian crude oil and natural gas without interruption, “and we trust this will remain the case”. Like nine other countries, Hungary is paying in euros before a conversion to roubles, he added.

Whereas contingency plans are in place, Hungary does not expect Gazprom to stop gas supplies to Hungary since the country is fulfilling its payment obligations in full, he said.

Meanwhile, on the subject of family support, Gulyas said the government was proud to spend the highest proportion of its GDP in the European Union in this area, and these benefits, he noted, are linked to work. This will remain the case, he said.

Put to him that 90 percent of 600 small petrol stations in Hungary may be bankrupted because of the current cap on the price of petrol, Gulyas said the government was not considering changing the blanket cap since a more graduated and targeted system would involve too much red tape.

Commenting on food-price caps, he said that some of the sectors affected generated big profits, and the interests of Hungarian families currently had priority over profits. The annual cost of the measures, around 50 billion forints (EUR 130m), introduced in February mainly affect multinationals. Smaller retailers are far less affected, he added.

Making long-term decisions on price and interest caps amid the current instability, he said, would be hard, so the government making sure that the measures and their deadlines are predictable and properly communicated.

Commenting on the EU recovery fund, Gulyas said talks were in progress but the ball on signing the agreement was in the European Commission’s court.

“We don’t see any problem — especially after receiving the letter of conditionality — that we wouldn’t be able to resolve,” he said.

Criticism of the high number of single-bid public procurements was valid, he said. But other censures were “absurd”, he added, referring to the allocation of judges, “a technical issue” which did not warrant the withdrawal of EU funds.

Gulyas said Hungary had the right to the EU money because “we are part of the common market and we observe its rules”. Hungary, he added, would “certainly receive those allocations sooner of later”.

It was after parliament approved the child protection law that the EU refused to sign off Hungary’s portion of recovery money, he said. The government stuck to its insistence on keeping the law during coordination talks, especially in light of the results of the referendum which overwhelmingly backed the measures, though it would find acceptable if certain allocations were transferred to different areas, he added.

Regarding V4 cooperation, Gulyas said all four members of the Visegrad Group, Hungary and Poland in particular, aimed to ensure that the bloc continued to operate effectively.
He noted differences of opinion on the issue of Russia, but these, he added, were not as sharp as appearances or portrayals in the international press suggested.

“Of key importance are good relations with Poland,” he said, adding that Katalin Novak, Hungary’s incoming president, will pay her first official foreign visit to Warsaw.

Asked about a future visit to Hungary by Pope Francis, Gulyas said a preliminary date had been set and this would be announced by the Vatican.

Asked to comment on the opposition’s reaction to ruling Fidesz’s proposal to divide parliamentary positions based on a two-thirds to one-third formula, he said the ruling side’s offer fairly reflected the election outcome and it was now up to the six-party coalition to decide whether or not they wanted to participate in parliamentary business. He said recent left-wing proposals had tended to get entangled in their internal strife.

In connection with a range of planned amendments to the 2022 budget, Gulyas said the government did not support any kind of austerity measure that may affect ordinary people. At the same time, the deficit target of 4.9 percent remain unchanged.

“The question is how long the war in Ukraine will last,” he said, noting that it was costing Hungary several hundred billion forints in additional spending each month.

He said a deficit of below 3 percent would not be targeted before the 2024 budget.