Prime Minister Viktor Orbán - Photo: PMO

Government aims to increase energy capacity in coming years, PM says

Orbán: Hungary strong enough to stay out of war

Hungary will stay out of the Russia-Ukraine war and will continue to successfully veto sanctions that go against its interests, Prime Minister Viktor Orbán said on Thursday. Addressing the year-opener event of the Hungarian Chamber of Commerce and Industry (MKIK), Orbán said it was clear from the make-up of his cabinet that it was focused on the economy.

Though cabinet reshuffles within a single electoral cycle are not typical, certain changes became necessary shortly after the formation of the government last May, Orbán said. He said the change had been made because it had become clear that the sanctions imposed by Brussels had resulted in a rapid rise in energy prices, and the issue of energy had become the key to economic success and the country’s financing.

This meant that an independent energy ministry was needed, Orbán said, praising the work of Energy Minister Csaba Lantos.

Unlike general European tendencies, Hungarian public debt and the deficit declined in the last three election years — 2014, 2018 and 2022, Orbán said. It is therefore “silly, dumb and malicious” to accuse the government of shaping the 2022 budget according to campaign considerations, he said.

The government remains committed to market and private capital, he said. Hungary will not be able to achieve its goals without market financing, he said.

The government will interfere only until market financing is restored, and will endeavour to complement missing interest and liquidity levels, he said. “But that is crisis management and not a change of direction,” he said.

Regarding the “rebuilding” of ties between Russia and Hungary, which MKIK head Laszlo Parragh welcomed in a previous speech, Orbán said those will be determined by “a reshuffle in Europe’s power structure”. That “experiment”, rather than purely economic policy considerations, will determine whether Hungary’s ties with Russia will be revived, he said.

Europe is weaning itself off Russia which has so far provided cheap energy and raw materials, in exchange for modern technology, Orbán said. That energy dependence is now being “slowly but surely taken over by another,” he said.

“Hungarian foreign and economic policy will have to consider what sort of relations can be created and sustained with Russia in the next 10-15 years,” he said.

Regarding labour policy, Orbán said Hungary will need some 500,000 new employees in the coming 1-2 years. The priority is to “mobilise internal resources”, he said.

Employees in fostered work programmes “are not part of that reserve” as they make a living in their current employment, rather than relying on subsidies, he said.

At the same time, Hungary still has “domestic reserves”, which is why large industry development projects are focusing on eastern Hungary, he said. Full employment is nearly achieved in the area of Debrecen, and Nyiregyhaza will follow suit in a year, while northern Hungarian “Miskolc is more complicated”, he said. Next, labour policy efforts will concentrate on Bekes County, in southeast Hungary, he said.

“The European Union’s current political atmosphere, which prioritises regional cooperation and helps relations with Hungarian communities across the border,” also gives Hungary an opportunity to mobilise workforce there, he said.

“We can’t give an advantage to foreigners over Hungarians, we can only consider guest workers once we have exhausted these reserves,” he said.

Hungary must also avoid the trap of “employing guest workers as a commodity” because Hungarians are unwilling to take on certain jobs, he said. “If the job is uncomfortable or difficult, it should pay more, but foreigners cannot have advantages over Hungarians,” he said.

Guest workers would only be allowed temporary residence, he said.

The government will keep taxes low, Orbán said, citing OTP Bank chairman-CEO Sandor Csanyi as saying that instead of introducing new taxes, the focus should be on collecting the existing ones.

Concerning the global minimum tax, Orbán said the extra burden from the tax would fall on foreign players rather than Hungarians. Hungary “has it on paper from the European Union” that the local business tax can be included in the calculation of the minimum tax, he said. This protects almost all Hungarian large companies, meaning that the introduction of the global minimum tax will not result in any additional burdens for them, the prime minister added.

As regards higher education, Orbán said connecting universities with the economy remained a key issue, “regardless of the dirty moves the European Union is making regarding the Erasmus and Horizon Europe schemes”.

He said that by suspending Erasmus and Horizon funding for universities run by foundations, the EU was hurting the competitiveness of Hungarian universities rather than that of the government. The prime minister said this competitiveness stemmed from the universities being “directly linked to the government’s decision-making through state secretaries and ministers”.

“This is important for the universities, not the government.” the prime minister said. “This kind of direct link is the biggest competitive advantage we have compared with western institutions.”

Orbán said the EU’s decision went against the competitiveness of the Hungarian economy and Hungarian universities and should not be accepted.

The boards of trustees of universities managed by foundations had to be changed, but the advantage offered by Hungarian universities being an integral part of economic development must not be given up, he said.

Orbán said that though he believed Hungary and the EU could come to an agreement, if talks were to fail, these education programmes would have to be financed by the state budget. If the EU does not grant universities the funds, they will receive research funding above the EU level so that they could establish international research connections, he added.

Meanwhile, the prime minister said that increasing Hungary’s energy capacity will be a key policy in the coming two years, and will be coordinated by Energy Minister Csaba Lantos. Hungary’s industry policy focuses on investments, developments and the industry, which are energy-intensive sectors, he said.

“We will build gas plants to serve the large industrial centres,” he said. The use of gas is not prohibited by the EU “in the current situation,” he said.

Energy can be imported or produced, and gas is the only source from which Hungary can produce its own energy, Orbán said. Concerning alternative energy sources, he said Hungary was using solar energy and could potentially use wind energy. The country could also eventually produce enough geothermal energy to be useful to the national economy, he said.

Orbán said that in the coming period Hungary will have to take advantage of its ability to build gas plants at a relatively quick pace. Hungary has to build two or three plants either using state resources of private capital in order to be able to supply its industrial projects with energy, he added.

If the EU provides funding for this, Hungary will use it, otherwise it will be financed from other resources, Orbán said, adding that such a project could attract investors from all over the world.

Orbán identified the rising interest on Hungary’s public debt as another problem. Whereas the Hungarian economy was able to secure funding easily thanks to a falling interest on the public debt in 2010, inflation in Europe has led to a rise in interest rates everywhere, he said. This means credit that was cheaper in the past must now be renewed with higher-interest credit, he added. He said the share of expiring debt was low in 2023 and 2024, adding that the high interest rates did not pose a direct threat to the economy for the time being.

Orbán said the absence of economic policy dilemmas in recent years demonstrated the stability of Hungarian economic policy. But now, he added, “there is a disagreement between the central bank and the government on economic policy.”

“But this isn’t abnormal, only unexpected seeing how it didn’t happen over the last 7-8 years,” the prime minister said.

He said the central bank wanted to curb inflation by cutting the money supply. But, Orbán argued, if inflation was caused by rising energy prices and sanctions policies, then the money supply may not have to be reduced at the current rate.

Hungarian economic policy will remain coordinated, which has been an important element of its success so far, Orbán said.

The prime minister stressed that if the government’s anti-inflation policy is successful as reflected by the February data, and inflation starts slowing in the coming months, it will be easier to coordinate the central bank’s anti-inflation instruments with the government’s instruments.

It must be accepted, Orbán said, that economic policy debates are “a podium where otherwise intellectually strong and colourful personalities can see an opportunity to come forward”. “I am no exception to this,” he said, adding that “this is typical of all of us since we are humans and we are players in the world of politics.”

Speaking of the vehicle industry and the battery plants, Orbán said every Hungarian citizen has the right to live his life in a livable environment, and everyone has the right to expect that all investments in Hungary are implemented under the strictest possible environmental conditions. Hungary continues to apply the strictest safety standards for all industrial investments, standards that are stricter than at similar German factories, he said.

Orbán noted that the vehicle industry provides a living for around 300,000 families in Hungary.

He said that a technology shift is taking place in this sector, and if after 2035 only electric vehicles can be manufactured in Europe and the components are not made in Hungary, then these will be made elsewhere and “our conventional automobile plants will have to slowly be shut down”.

The Hungarian vehicle industry must be kept alive, he said, and the necessary production technologies and capacities should be created in the country, he added.

Currently, the four biggest investments in the history of the Hungarian economy are being implemented, the prime minister said, including two in the east of the country. These are “fantastic industrial development achievements, of historic dimensions, which will bear fruit in the coming years,” he added.

Hungary will stay out of the Ukraine war and will continue to successfully veto the sanctions that violate its interests, Orbán said.

“We will be under great pressure, but we are strong enough to stay out of the war,” the prime minister said.

Orbán pledged to maintain Hungary’s energy supply coming from Russia and the centrally regulated energy price schemes, adding that 4.7 million jobs will be protected, and even increased.

The government will be able to support SMEs with special programmes even if the central bank’s base rate remains high, Orbán said.

He said the government will maintain export-oriented economic growth and it will simultaneously curb inflation.

Orbán noted that the cabinet decided at its meeting on Wednesday to increase the capital of Eximbank by 30 billion forints, allowing the economic development ministry to provide an additional 300 billion forints for economic development purposes.

He stressed that there are production capacity expansions in Hungary that show that the fundamentals are strong.

Hungary’s automobile industry output reached a record 12,000 billion forints in 2022, Orbán said, adding that the electronics industry’s production also exceeded 10,000 billion forints last year. Food industry output came to more than 6,000 billion forints and the pharmaceutical sector reached 1,000 billion forints, he said.

In connection with investments, Orbán said that Hungary wins investments at the lowest subsidy intensity compared to its competitors. It is only in the mind of left-wing politicians who have “no clue of the economy” that “capital is there lying in the street and cannot wait to settle somewhere,” Orbán said. “The reality is that capital makes calculations and the possible locations are competing to attract it,” he said.

He also noted that Hungary is at the 94th place in a global ranking of countries in terms of population size and the 34th in terms of exports, which “makes us the world’s 15th most open economy”.

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