Gossip mongering: the new Hungarian pastime

Yesterday I already mentioned some of the unbelievable speculations concerning the prime minister, the coalition, the SZDSZ, and early elections. At the moment nothing much is happening. The SZDSZ’s National Council approved the decision to leave the coalition at the end of the month and the MSZP is planning to govern alone. That’s all we know. Well, this is mighty little. The curious public must have more excitement, or at least that’s what journalists (always aware of ratings) think.

The latest speculation concerns the fate of the prime minister. On Friday he said that he would resign only to allow the government to execute a more "radical" economic overhaul. His plan is to follow moderate reform policies. (That was like saying to the MSZP that they might have to continue taking a little arsenic for a while, which could make them feel ill, or they could opt for a fatal dose. It’s hard to imagine that the MSZP, struggling with the moderate reforms, would decide to move to the extreme, which would undoubtedly equate to "in extremis–at the point of death.")

There was a widespread belief that Gyurcsány’s fate would be decided by the MSZP caucus tonight. The media reported that "personnel questions" would be seriously discussed at this extraordinary meeting of the parliamentary faction. Surely, this would be no easy session: it might last three hours, late into the night. "We," meaning the press, might not know until tomorrow morning. I heard this on the evening news on ATV, with the anchorwoman anxiously asking her colleague on the scene whether there was any update. The first time, no; about ten minutes later the reporter sadly announced that he managed to talk to a senior MSZP leader and that "personnel questions will not be even discussed." How disappointing.

OK, if the personnel change didn’t occur tonight perhaps it will tomorrow night. Stop.hu’s headline reads: "The fate of Gyurcsány might be decided by Monday evening." From the article we "find out" that the successor might be János Gönczi, János Barabás, or Imre Nagy. Wow! What well known names! The first two I have never heard of, the third, Imre Nagy, I heard of but his namesake was a much more famous man than he is. I can well imagine how happily the outside world would greet Gönczi, Barabás, or Nagy as the new prime minister of Hungary. Who, who, who? And the forint would begin to fall and the Budapest Stock Exchange would get the jitters. Of course, we must keep in mind that two other people, Gordon Bajnai and Péter Kiss, had been mentioned earlier as candidates for the job. At least we know who they are.

Then come speculations concerning SZDSZ. That is no ordinary story either. According to the latest gossip, although the National Council overwhelmingly approved Kóka and his friends’ decision about leaving the coalition, the Meeting of Delegates will make the so-called final decision. But these are the old delegates. At the end of June, after the SZDSZ elections, the revamped Meeting of Delegates will get together and choose a new president. And then the SZDSZ will return to the coalition. One doesn’t know whether to laugh or to cry over this type of fantasizing.

What worries me is that the Hungarian public becomes befuddled, and panicked, by all these wild speculations. The Chicken Littles can envisage the complete political and economic collapse of the country. And as if the speculations weren’t bad enough, we have real news: that István Gaskó, head of one of the trade unions at MÁV (Hungarian State Railways) will strike again as of midnight tonight and most likely the Budapest transit workers will join in this time. If not in government, there will probably be chaos in transportation.

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NWO
Guest
Count me among the “chicken littles”. The economy can only grow meaningfully in the medium and long term if radical fiscal reform is undertaken. To do this, it will require fundamental changes to the social saftey net, and thus to Hungarians understanding of the improtance of individual responsibility. This is obviously not happening, and is unlikely to occur unless Hungary falls into an Argentina style financial crisis. We are sitting ourselves up for two more years on treading water. We already know that the political system and the political actors within the system have neither the vision, courage nor intelligence to address these issues head on. We also know that the political system has strucutres built in to it (i.e., referendums and the like) that exacerbate the short termism of the political class and increase the propensity for populism as a political solution. So what is there to like about this scenario? Who actually sees any light at the end of the tunnel? Who will the country rely on to help it escape the trap of its own making? It is clear the exisiting political class can’t do it. The self-styled great reformer, Gyurcsany, has told us last week he… Read more »
Adrian
Guest
Nor would I underestimate the potential for a major economic and political crisis in Hungary. Though I think the events driving it would be global and economic rather than local and political. The global economy is still in a very precarious state, banks have failed in the US, UK and Germany and it is still unclear how and when the global credit crunch will unwind. It was a international credit crisis that precipitated the economic crisis in the 1930’s, and so ultimately the ascendancy of fascism in Europe. Hungary is vulnerable firstly because so many Hungarian firms and households have borrowed Swiss Francs and Euros. If the forint falls significantly against these currencies, these loans will default. This doesn’t allow Hungary the soft option of devaluation (the pound has lost 13% against the forint in the last year). The British and American governments have flooded the capital markets with cheap credit, and lowered interest rates as much as they dare, does the Hungarian government have either of these options? Secondly, the tough option – deep fiscal reform – was rejected by referendum, and coalition politics have now adapted to the new policy. Now Hungary is just waiting for events to… Read more »
NWO
Guest

Believe me, “go slowly” means do nothing. I do not want to disparage what the Government has done since mid-2006. In fact, the reduction of the twin deficits (something that is not yet done)has been a great accomplishment (of course, if he had be really responsible he would have addressed this before the 2006 elections). I actually think the PM, if given his choice, would have tried some further and deeper reforms, but the fact is he has no political support within his Party for that and he stays in power by the mercy of a very small number of important MSZP officials. This is a recipe for 2 years of backsliding.

Odin's lost eye
Guest

NWO’s Comments
***** “Count me among the “chicken littles”. The economy can only grow meaningfully in the medium and long term if radical fiscal reform is undertaken. To do this, it will require fundamental changes to the social saftey net, and thus to Hungarians understanding of the improtance of individual responsibility.” *****
To which I would add “the reform of the tax structure and getting a grip on the black economy”
I ask myself is Gyurcsány the only one who can see this? Is Olban acting like an ostrich with his head in the sand or does he beleive that the EU will bail Hungary out for ever?
Sometimes one has to take a ‘softly-softly’ approach in the beginning especialy when one’s supporters do not seem to be able to understand a simple balance sheet!
As to the matter of ‘responsability’ Until the return of democracy the last thing any Hungarian wanted was to be ‘responsable’ for anything. If you were you could end up having your disolved remains poured down the drains at 60 Andrassy u. This idea is still almost instinctive amongst them.

Varangy
Guest
A couple things: ****It is also true that the population does not understand the situation, and is not willing to sacrifice any present day comforts for far greater benefits in the future. This is a country of “no responsibility”. Just look at today’s strikes. Will anyone be held responsible for shutting down Budapest and large parts of the country?**** NWO is absolutely right. Everyone wants to have their cake and eat it too. There is no sense of personal responsibility and long-term economic health for future generations. In a sense, they want to rob Peter (the future), to pay Paul (the present). Eva, you, rightly, have pointed out what I have just outlined. But I wonder just why that might embedded in Hungarian culture? Do you care to comment? ****”the reform of the tax structure and getting a grip on the black economy”**** @Odin’s lost eye The black economy is a symptom and direct effect of regressive and punishing Hungarian tax structure. Do not make the mistake of positing it as the cause. What inevitably happens is that many politicians want to as you say, ‘get a grip’ on it be raising taxes or increasing enforcement. But the problem is… Read more »
Adrian
Guest
Varangy, I’m braodly sympathetic to your argument that cutting tax rates (especially payroll taxes) could coax some money out of the Hungarian public. This policy was realised with devastating effect by Thatcher. But how comparable are British and Hungrian tax cultures? Britain – since Henry VII – has a history of a gradually widening base for direct taxation – from the top down. Hungary has historically given its elite exemption from taxation. I understand that the toll on the chain bridge was the first ‘tax’ the Hungarian nobility were ever expected to pay. So historically in the UK its been no taxation without representation, whereas in Hungary representation has implied no taxation. This sense of entitlement would seem to pre-date the communists, and be a legacy of the Hungarian nemesség. A significant question that I can’t answer is how on earth in a socialist economy did personal and pay roll taxes get so high? Surely it would have been simpler to pay lower wages? In “The age of turbulance” Alan Greenspan pointed out that the rule of law is only selectively applied in the polities of Eastern Europe. This chimes with many anecdotes I have heard where tax laws have… Read more »
Varangy
Guest
@Adrian I am not sure I am able to weave your different references into one coherent argument. (This is not meant as a slight, it is probably me.) I don’t think the ancient practice of nobles being largely exempt from taxation has any legacy influence on modern Hungary. ****A significant question that I can’t answer is how on earth in a socialist economy did personal and pay roll taxes get so high? Surely it would have been simpler to pay lower wages?**** This does not compute for me at all. Socialist economies naturally foist all sorts of personal, social contribution taxes on their slaves, whoops, I meant on their serfs, whoops, I meant on their workers. Obviously for redistributive purposes. Socialist economies try and ignore the obvious (lack of) economic incentives and direct effects of socialist policy. Sadly, like Viki is doing now. ****many anecdotes I have heard where tax laws have been selectively pursued as a means of social and political control … If this is the case, significant tax reform is only going to come the back of broad consensus among the political elite that it is time to surrender that means of control.**** I completely agree. And… Read more »
Adrian
Guest

vanrangy,
please don’t swear, our host doesn’t like it. I appreciate her hospitality very much, and wouldn’t won’t to lose it.
More about tax later

Odin's lost eye
Guest
Varangy please refrain from using basic Anglo-Saxon. It diminishes the argument. However I agree with you on the subject of ‘CONTROL’. All over the world ‘officers and other officials’ deem that they know better than you. This is the nature of ‘officialdom’. Once established it is almost impossable to remove it. It is like a cancer – it spreads and spawns more of its self. It makes its own rules and often flouts and ignores the laws of the land. Then only answer is to get hold of a ‘Martin Ryland’ type and let him cut out the dead wood. In the matter of reforming the taxation structure, the models are already in existance. It is just a matter of importing one of the most suitable from abroad. When there is a fair and propper taxation system the ‘black economy’ will die back to a more normal proportion. The problem of taxation in Hungary seems to go back to before the W.W.II. Among some of the translated Hungarian authors I have read is Sandor Marai. In his books he is always complaining about the middle classes avoiding taxation. Finaly as NWO quite rightly says **** “It is also true that… Read more »
Adrian
Guest
Varangy My post was not intended as a coherent argument, but three observations about tax that I think your position overlooks. If it helps I’ll flag “new point” in future. New point: History and taxation “I don’t think the ancient practice of nobles being largely exempt from taxation has any legacy influence on modern Hungary”. Well, this is the difference between you and me. Going back to the Thatcher years; I’m curious to know your position on the poll tax – or as she called it the “community charge”. I think that her battle to introduce this reform to local taxation was lost as soon as it became “the poll tax” in the public imagination, this harked back to another piece of tax legislation last introduced in 1381. The majority of British people decided that this tax was unfair. Folk memory of taxation goes right back to Robin Hood in English culture. I don’t see why Hungarians should not have a folk-memory of a political priveledge that only started to wain in 1848. New Point: Socialist Economy I didn’t mean economies with redistributive tax policies like the UK or Hungary, those I would call mixed economies. I meant economies where… Read more »
Varangy
Guest
****Going back to the Thatcher years; I’m curious to know your position on the poll tax – or as she called it the “community charge”.**** I am generally against government/taxation (and spending). Big surprise, eh? That said, I don’t advocate anarchy and public goods (infrastructure, military, police etc etc) must be funded. The devil, of course, is in the details. Who defines what is public good and how much should it funded? I know very little about it — I think she was trying to, perhaps clumsily, offset another tax that had been eliminated. ****I think that her battle to introduce this reform to local taxation was lost as soon as it became “the poll tax” in the public imagination, this harked back to another piece of tax legislation last introduced in 1381. The majority of British people decided that this tax was unfair. Folk memory of taxation goes right back to Robin Hood in English culture. I don’t see why Hungarians should not have a folk-memory of a political priveledge that only started to wain in 1848.**** I see your point about ‘folk-memory’, but it is not something I observe or have observed among my social circles. ****I meant… Read more »
Viking
Guest
I am the first one to claim that the need for public support for austerity measures are overrated, but I mean during the period when these measures are put into effect. That is why I am conceptual against referendums, like the Hungarian one his year. That said, one still need the support of the common people to get a taxation system to work. You cannot just move the tax-% up and down and think it will have any effect on people’s moral/willingness to pay the tax. Let me take a short anecdot: I was working in renovating one of our cellars with my FatherInLaw when we discovered that we needed some small tools. My FatherInLaw shook his head and said – “It was better in Kadar-time, then you just took what you needed from the work-place”. My FatherInLaw is close to 80 years old, never been outside Hungary, born in Western Hungary, married a girl from Eastern Hungary and built his family there in the East. He started to work when he was 7 years old and worked all his life. None of his family were never Party members and their children were never Pioneers (which was unusal in the… Read more »
Varangy
Guest

****You cannot just move the tax-% up and down and think it will have any effect on people’s moral/willingness to pay the tax.****
Of course it does.
****Would lowering taxes just give the middleclass more to spend on luxury or would they really invest the money for “best of the country”?****
How about this? Let the middle-class (and any other class) spend their money any which they see fit.

Adrian
Guest
Varangy, we seem to agree on lots of stuff in principle about tax. But:- Counter cycle spending? In the 1930’s growth stopped in the developed economies and the economies went into a downward spiral. The reason for this was inadequate social security, as people lost their jobs, they could no longer afford to consume, and the total demand in the economy contracted, as demand contracted, more people lost their jobs and so on. The solution to this was provided by J.M.Keynes – the government should borrow to spend, thus creating deferred taxation. The stimulus package Bush is pushing through congress now is exactly this. Sometimes increasing the tax burden can increase growth. There is a more complicated aspect to this argument involving the relationship between saving, consumption and income inequality. But I’m tired, maybe tomorrow… Moral or Economic? Sometimes your approach to tax reform is moral: “Let the middle-class (and any other class) spend their money any which they see fit.” here ‘their’ seems to imply that you see tax as some sort of legalised theft, a very Hungarian view. Sometimes your approach seems purely economic “But basic economics, the laws of supply and demand, price theory and the effects… Read more »
Viking
Guest

Varangy,
So you actually are stating that if you lower taxes peoples willingness to pay those taxes will go up? In what relation 10% tax down = 20% more tax income for the state due to an “automatic” higher willingness?
The State never needs to argue its case? Making some propaganda to the people about why it is important to pay tax (common ours etc)?
Normally a Libertarian thinks that Tax is theft anyway, so I cannot understand your view. Because the % goes down, the Libertarians willingness to pay the tax goes hardly up.

Adrian
Guest

Viking, Varangy
Let’s assume an economic argument about tax.
“The willingness to pay” becomes the “marginal cost of avoiding paying”. If the tax is less than the cost of avoiding paying it, then people will be willing to pay. If the tax is more than the cost of avoiding paying it then people won’t pay.
The impact of any tax rate reform can only be assessed through consideration of the costs of tay avoidance. The costs of avoiding paying tax are real but complex: the cost of creating seperate legal identities; cost of holding wealth/ earning income in tax efficient forms, and the risk of punishment for tax fraud.
Historically, the costs of tax avoidance in Hungary have been very low. Though Gyurcsány seems to have made tangible progress in raising them

Viking
Guest

Adrian,
Yes I can agree with that. The deterrence of getting caught plays a role in peoples willingness to pay tax, but I still believe there is a moral value also. Maybe because I am Swedish and some researchers claim there is a common culture thing among Swedes, Russians and Japanese – The honour of the Common.
In Sweden this is seen as the “FolkHemmet” (literally “People’s Home”) meaning the Good State.
Russians believe in their leaders, if it was the Tsar or Stalin – They were all called “Little Father”. Now it is Putin the Russians put their total trust in.
The Japanese have a strong connection to their Emperor.
In all these 3 countries people normally have a positive view of their Leaders and the State they represent. Hence a bigger willingness to contribute with the tax, for a/the common good.
But maybe we are the exception that confirms the rule that the rest of the world does not give a hoot were the taxes go, they just do not want to pay it…

Varangy
Guest
****So you actually are stating that if you lower taxes peoples willingness to pay those taxes will go up? In what relation 10% tax down = 20% more tax income for the state due to an “automatic” higher willingness?**** @Viking The concept you are instinctively coming up with is known as elasticity. That is, a ratio of the percentage change for X over percent change in Y. In this case: -X% marginal tax rate over +Y% increase in paid taxes What that is exactly for Hungarian taxes, I don’t know, it is probably somewhat inelastic i.e. between 0 and -1. (-1 would be -X%/+X%) Now let me tell you why I think that. (Besides the obvious, the more free your markets are, generally, the smaller your black markets.) The black economy exists, as we all know, precisely to avoid higher prices by the consumer and taxes by the supplier. However, the black economy is not without risk, cost and inherent financing limits — these, while hard to quantify, are very much part of what Adrian terms ‘costs of tax avoidance’. I perceive them to be much higher than Adrian does i.e. simply avoiding detection by the Hun. State. It is… Read more »
Adrian
Guest

Varangy,
so you think that Bush’s fscal stimulus package is a mistake then?
If so, what would your response to declining growth in the US be?

Viking
Guest

So Varangy-Country is ruled by fear. Fear of getting caught. The people there are not guided by a moral compass that keep them on the straight and narrow road. No 10 Commandments etc, just fear and repression from the bad State.
In China they have public executions as Saturday entertainment in big Stadiums. I believe they still get new murderers, rapists and big embezzlers faster than what they can kill them off. So if it fear of getting caught and killed does not stop people from committing crimes, how will then fear of getting caught for tax evasion stop people from cheating with the tax, regardless of the %?
But what do I know, I am just the “village idiot” in the Varangy world.

Varangy
Guest
****Varangy, so you think that Bush’s fscal stimulus package is a mistake then? If so, what would your response to declining growth in the US be?**** @Adrian Great question. I, personally, think that Bush’s giveaway is a prodigious waste of money. I was going to draw some analogies myself for you, but time would be better spent reading some more intelligent , better argued and more eloquent than me. Therefore, I direct you to http://opinionjournal.com/columnists/rbartley/?id=95001820 The column is a couple years old — but the economics don’t change. ***In what passes for debate in Washington, the prevailing notion seems to be “putting money in people’s pockets.” This might be called single-entry Keynesianism, since the money the government puts in pockets arrives by immaculate conception.*** Now onto, *sigh, Viking: ***So Varangy-Country is ruled by fear. Fear of getting caught. The people there are not guided by a moral compass that keep them on the straight and narrow road. No 10 Commandments etc, just fear and repression from the bad State.*** You make no sense whatsoever. This is the third or fourth time you have either: a) mistakenly misconstrued something I have said b) intentionally built a laughably obvious strawman c) have… Read more »
Viking
Guest
Varangy, I was trying to get you to see the moral side of governing a country. It is not just a spreadsheet operation. I obviously failed, but I can live with that. I do many decisions based on simple economic rules, many of those you described. But, and here we differ, I try to put a moral dimension in some of my decisions. It is up to my discretion and my values and there is probably no consistency whatsoever. You call it a simple judgement of the greatest benefit – white or black transaction? I call it “fear of getting caught”. Same coin, 2 sides. I will still believe that it is possible to influence the “benefit”-factor to an unknown degree by applying moral (or State propaganda as maybe a Libertarian would call it, but it is basically the same thing). For a State the moral-boosting (we are all in the same boat etc), if successful, can be cheaper in many senses than the “fear”-factor only. Lately Veres was trying to do this, he even asked the media to help him. I do not think Veres’ plea will have any real effect in such a politically divided Hungary of today.… Read more »
Varangy
Guest

****I do many decisions based on simple economic rules, many of those you described. But, and here we differ, I try to put a moral dimension in some of my decisions. It is up to my discretion and my values and there is probably no consistency whatsoever.****
Moral principle does not have to be mutually exclusive with economic incentives.
I assume most people are ‘good’ and most people make decisions informed by their moral principles and economic incentives. They do not have to be, but can be, binary.
I cannot comment on the rest of your comment b/c it has no consistent line or argument.
****I do not expect to get the Nobel-prize for this theory, though.****
For Nobel Prize in the Name of Incoherence, I will certainly nominate you.
*****Punishment as deterrence, no not really. It would be easier if it worked, but a high moral, good working society and working treatment of mentally ill persons is normally better.*****
I agree. We should treat you better.
****I did not know a “village fool” had any high standard on his common sense.****
He doesn’t.

Adrian
Guest

Varangy,
the economics do change, the US economy is no longer growing. By the mesure of GDP per person its already in recssion, i.e individual americans are getting poorer.
Do you wait and let them get poorer?

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