Gulyas: Government to extend interest rate freeze

Despite the challenges surrounding the drafting of the budget such as the ongoing war in Ukraine, the government is keeping to its practice of submitting the budget bill during parliament’s spring session, Gergely Gulyas told a regular press briefing. This ensures predictability and sets the government’s economic policy goals for next year, he added.

The budget aims to guarantee the country’s security, protect families, pensions and jobs, as well as the cap on household utility bills, Gulyas said. It must calculate with the possibility of a protracted war, but it is important that the government’s goals are maintained and that the budget deficit and the public debt are reduced, he said, adding that the draft budget will target a deficit of 2.9 percent of GDP.

The government plans to submit the draft budget to the Fiscal Council on around May 20, he said.

The bill was drafted with the war in mind, Gulyas said, adding that peace and a phasing out of sanctions would greatly increase the budget’s room for manoeuvre, making the country’s situation much easier.

During times of war, the defence budget has to be increased, he said. Amid these circumstances inflation is higher, too, he said, adding that the government continued to urge an immediate ceasefire and peace talks.

Meanwhile, Gulyas said the government is renewing frozen interest rates for retail borrowers and small and medium-sized businesses, and will keep the policy in place until the base rate drops to below 10 percent.

He noted that the interest rate freeze on retail loans was introduced in January 2022 and expanded to SMEs in November.

The rate of inflation and, consequently, the base rate make it impossible to scrap the measure, he said.

As soon as the central bank base rate drops to below 10 percent, the government will phase out the freeze on interest on loans. The government expects inflation to fall into single digits by the end of the year, he noted.

Phasing out the rate freeze now would place too great a burden an many families and SMEs, Gulyas said. The extension of the rate freeze directly helps more than 300,000 families with over 1,360 billion forints (EUR 3.7bn) in credit, he said. The freeze saved them 80 billion forints in 2022 and 60 billion in the first half of 2023, he added.

The measure also affects more than 28,000 SMEs, with close to 1,000 billion forints in loans, and has saved them 80-85 billion forints since its introduction in November 2022, he added.

As regards the war in Ukraine, Gulyas said Pope Francis’s apostolic visit to Hungary late last month reaffirmed the government’s position that urges an immediate ceasefire and peace as “the only morally right one”.

With the pope being pro-peace, “we can say that Hungary’s stance received the strongest possible moral support,” he said.

If the Vatican is preparing a peace plan, as the pope indicated, Hungary will support that peace mission, Gulyas said.

The extent of the destruction, he said, was “already unfathomable”. “Hundreds of thousands have died, and only a ceasefire can save lives,” he added.

Meanwhile, Gulyas said the amendment of the law on the judiciary ensured that Hungary would comply with all requirements for the disbursement of European Union cohesion funds “within weeks”.

He insisted that although the “demands were baseless”, Hungary had complied and often exceeded EU demands. “In about a month’s time, we hope to be able to send invoices to Brussels and get payments in return,” he added.

The funding would flow from sections of the EU’s budget for the 2021-2027 financial cycle that do not fall under the rule-of-law conditionality procedure but from its Resilience and Recovery Facility set up against the economic fallout of the coronavirus pandemic, Gulyas said.

The government aims to ensure access to all resources, he added. “There is serious opposition to that in Brussels and among Hungary’s leftist opposition, but we ask them to stand on the side of Hungarian teachers, health care and the economy,” he said.

Regarding inflation forecasts, “the government is tied to the central bank”, which projects 2024 inflation of 6 percent, Gulyas said. Growth is expected at 3-4 percent, and the government has high hopes of reaching 4 percent, he said, adding that the government aims to push the public debt down to below 70 percent of GDP. Responding to a question on the tax on companies making excessive profits, Gulyas said it was likely that the tax would be maintained at a reduced rate next year. Details will be announced when the final draft of the budget is discussed, he said.

He said forecasting the energy price was one of the most difficult and controversial aspects of drafting the budget, and asked for “patience” until May 20, adding that notwithstanding “huge uncertainty” in this respect, prices next year were likely to be significantly lower than this year. Planning, he said, involved “higher risk than in previous years”.

Gulyas said the government expected inflation would drop “radically” in the summer, but food price caps would be maintained as long as inflation was at today’s high level.

He said the 2024 defence budget would be “significantly more generous” in terms of operations and development than this year’s. Also, a wage increase in line with inflation is necessary, he added.

Noting the legal obligation to provide a larger pension hike with inflation higher than planned, he said it was “too soon” to say whether such a measure would be taken.

Regarding this year’s deficit target, he said it was usual that spending in the first half of the year was frontloaded and the deficit eased in the second half. This is the case this year, too, though the data so far have been “somewhat worse than expected”, he added.

One scenario sees the first half of the year “bad for the economy”, with “moderate growth or a minimal decrease”, while growth picks up in the second half; the two together would keep the budget deficit in check, he said. Another scenario would envisage an unsustainable budget deficit in the absence of government measures. It is “still too early” to decide which of the two scenarios is correct, he added.

Regarding the situation of teachers in Hungary, Gulyas noted the government held negotiations with unions more than ten times, and they arrived at a consensus on some issues. Most of the problems were wage-related, he said. As long as teachers’ wages are low, “they are easily riled up against the government,” he said. The unions bear responsibility for supporting “political forces working against teachers’ wage hikes,” he said. “The Hungarian left are the main obstacle in the way of raising teachers’ wages,” he said.

He attributed the lack of wage hikes to the “extremely harmful” activity of the opposition, adding that left-wing lawmakers were calling for teachers to earn 800,000 forints before tax, yet Hungary was not receiving its share of EU funding “because we are not in favour”. Gulyas added that whereas “accusations of corruption are being voiced in Brussels”, Hungary had implemented “all requested amendments in this area”, while no such objections had arisen in connection with education.

Gulyas said student protests could end if everyone respected legal regulations. He attributed “political motives” to the organisation of protests, adding that for such political forces “nothing is less important than the issue of Hungarian teachers”. “Once they realise that their methods are undermining their political goals, they will stop the protests,” he added.

Gulyas said he thought that the area in front of the prime minister’s office should remain closed to the public after the construction project there is completed, adding that such offices where “anybody can touch the wall” were few and far between in the world. “If somebody tried this at the White House, they would be shot immediately, not just teargassed,” he said.

The fence at the prime minister’s office was requested by the main constructor around 18 months ago because it is a security zone, and a professional decision was made to erect it, without political considerations, he added.

Asked how he saw the chances of constructing a southern railway line circling Budapest after a court annulled the environmental permit of the project for a second time, Gulyas slammed the Budapest municipality, which “calls itself green even as it stands on the side of those wanting to stymie the development of public transport in the city, rather than on the side of its citizens.”

The southern railway line used to enjoy full political consensus with the previous and current leadership of the city, and incumbent mayor Gergely Karacsony has even signed an agreement supporting the project, Gulyas said. “That’s why it is incomprehensible and unacceptable that it later intervened … through the courts,” he said.

The 400 billion forint (EUR 1.1bn) investment is key to developing the city’s railway system and suburban traffic, he said.

The government will look into the possibility of obtaining a permit within the deadline for the EU funding on the project, he said. If that proves impossible, they will move on to another project beyond the city limits, he said.

Gulyas said the Budapest city council was the richest council in the country and one could expect it to maintain responsible financial operations while running the city’s public transport system. It is the city council’s number-one task laid down in law, he added.

In response to a question concerning the possible outcome of a Budapest survey refusing to allow private cars to cross Chain Bridge after its revamp, he said that if as many people participated in the survey as those who participated in the government’s National Consultation surveys, then the results would be worth considering. In line with an agreement between the government and the council, the government would contribute financially to the revamp of Chain Bridge only if traffic was properly restored, he added.

Gulyas said that a government decision to reduce the VAT for sightseeing buses from 27 percent to 5 percent was expected to whiten the grey economy. The requirement of electronic payment has been introduced at the same time, so the state is not expected to lose significant revenues from the change, he added.

In response to a question, he said ruling Fidesz would name its candidate for Budapest mayor once the party board came to a decision.

Commenting on the recent appointment of Gabor Borondi as chief of staff, he said the government had long been seeking a soldier who wanted to “shake up the army”. With the war on Hungary’s doorstep, he added, a new approach was needed.

In response to a question about a recent visit by a European Parliamentary delegation to assess the utilisation of EU funds, he said: “It is a unique situation when a thief is given the task of making financial controls”. Hungary cannot expect fair treatment from the EP, he added.

Commenting on corruption allegations linked to opposition Momentum MEP Katalin Cseh, Gulyas said the government believed that in all such cases the allegations of lawlessness and corruption must be examined, and it was the task of the authorities to clarify what actually happened. Asked about the EU’s sanctions policy, Gulyas said the government disagreed with the policy in general, but Hungary had been granted exemptions in the most important cases. When it comes to new sanctions proposals, he said, the government’s consideration was always whether the measure in question would hurt Hungarian interests, he said.

On the topic of migration, he said Hungary registered a daily average of 343 illegal entry attempts by May 9, a drop of one-third compared with last year. While the entire western political elite was complaining of growing migration pressure, illegal entry attempts were lower in Hungary thanks to the country’s border protection efforts, he said.

The interior ministry can guarantee that human smugglers who are released on condition that they leave the country leave within 72 hours, Gyulas said. The decision not to put Hungarian taxpayers on the hook to keep several hundred human smugglers in prison had been the right one, he added.

Asked about Ukraine’s potential accession to the European Union and NATO, Gulyas said the approval of new members was based on unanimous decision of existing member states. Until there was a ceasefire and peace talks, he said, it would be difficult to discuss these matters, “so peace in Ukraine is a shared interest,” he said.

Hungary has always supported the EU’s enlargement in the east, “but the bloc has not even admitted countries that are in a significantly better situation than Ukraine and have fulfilled significantly more of the accession criteria,” he said. “We would welcome a peaceful and prosperous Ukraine joining the EU one day, but it’s important that enlargement be based on objective criteria,” Gulyas said.

Regarding media tenders announced by the US embassy, the minister said he had watched “with interest whenever unofficial relations are made official”. He insisted that hitherto the US Democratic Party had funded Hungary’s opposition, “so it’s slightly better that they’re now funding its media,” he said, adding that it was preferable, however, for the media “to be free of foreign subsidies” since receiving this kind of money entailed media outlets abandoning their independence.

Gulyas said it was impossible to give a definitive answer as regards ratification of Sweden’s NATO accession and whether the vote would be held before the end of the current parliamentary cycle. “We’ll see, we’re not there yet,” he said in reply to a question about whether the Turkish election at the weekend would have a bearing on the matter.

Asked about the release from prison of Gyorgy Budahazy, a radical activist convicted on terrorist charges, Gulyas said he respected the decision of the president of the republic to pardon him, adding that procedures of the Hungarian justice system at the time had been “shameful”. Gulyas said that had it appeared that public safety would be compromised by his release, the minister of justice would not have countersigned the application for a pardon. He added that the only argument against pardoning Budahazy was that he had committed an act against the state.

Asked whether the government had a list of planned investments in battery plants and how many were under way, Gulyas said the foreign affairs and trade ministry would certainly know with which entities they were close to an agreement.

Regarding a plan of Janos Lazar, the minister of construction and transport, to allow businesses to take ownership of castles, he said the decision would not impinge on their public functions such as museums, and use for private purposes would only take place during periods of downtime.

Commenting on the government’s plans for the market in construction materials, he said the aim of the government’s pre-emption right was to ensure the free flow of supplies during the period of crisis and shortages, though the government had not availed itself of that right so far. He said it was necessary to increase the share of construction materials in the domestic market. Hungary, he added, does not have a cement industry. “We’d like this to change.”