Dobogókő: Gyurcsány is satisfied

Sometimes it is enough to look at a picture taken after a meeting to know whether the gathering was a success from the point of view of the organizers. The photo taken of Ferenc Gyurcsány surrounded by a number of people as they are leaving the government compound at Dobogókő speaks volumes. Gyurcsány is satisfied. DobobokoWe don't know too many details of the two-day discussions, but it seems that the party and the government are behind him. They came to some broad conclusions about the strategy the government should pursue over the next couple of years. As predicted, Oriens' plans for reorganizing the current economic structure found no sympathy among the politicians present. However, there was broad agreement on two issues. First, they were satisfied with the government's efforts of the last two years in decreasing the deficit. Second, although budgetary restraint should continue, the focus should shift to economic growth. There was agreement concerning the methods of achieving this goal: more jobs, more investment, changes in taxation, modest welfare reform, and positive changes in education.

They decided that the amount of money allocated to social benefits cannot decrease. The Swiss indexing of pensions will be kept. However, the money spent on social welfare must be used more effectively: fewer welfare checks and for a limited amount of time.

The question is where the money will come from to spur growth. Gyurcsány mentioned five sources: eliminating as much as possible the black and grey market. Even last year the budget managed to receive an extra 100 billion forints as a result of this effort. They are planning to increase the number of tax payers. They insist on a lean budget. They will look around to see where they could limit the number of tax exemptions. And last, they are planning to restructure the tax system, most likely increasing VAT while lowering personal income tax and taxes and benefits paid on behalf of employees. They decided against a property tax. I am pretty sure that deep down Gyurcsány would have preferred the introduction of this form of taxation but as he said "neither the country nor the majority of parliament would support its introduction."

Consultation on changes in the tax system will continue all summer; they plan to introduce the new tax law in the fall. Next week the whole parliamentary delegation will be informed of the details of the two-day conference.

One obvious question is whether enough money would find its way into the government coffers as a result of these measures. And will the measures be enough to jump start Hungary's sluggish economic growth? Gordon Bajnai, the very successful minister of economics, would like to see an economic growth at least 2% higher than the European average. Otherwise, the country's convergence in the near future is pretty hopeless. But can the government, by lowering the very high taxes and benefits the employers currently have to pay, entice investment and encourage expansion? That is a huge question mark. Most economists say that it is not enough. In order to evaluate the government's plans one must see figures; until then we must suspend judgment.

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“and positive changes in education.”
Are there any details on this?

I am not sure there is much basis for “suspending judgment”. A decision to sacrifice economic growth in order to maintain the high levels of transfer payments was the politically expedient decision (not to mention the Swiss indexing of pensions has a negative inflationary impact). It is also a decision that is otherwise in everyway wrong. In particular, the massive government outlays have a direct inverse correlation on the long term growth potential of the country. According to Simor, the L-T growth potential of Hungary is now closer to 3% than 4 or 5%. Given Hungary’s stage of development this is terrible. Furthermore, as a high tax/generous welfare state the dismal recentrecord in attracting large scale FDI is likely to continue. On the internal politics, it seems to me, if I were to hazard a guess, the loser is Bajnai who has been more aggressively promoting a pro-growth strategy. He was also singled out for criticism concerning EU funds. The winner is really the Szili wing of the Party that advocates more traditional left wing policies. Gyurcsany is moving away from the politically unacceptable “third way” and back to a more traditional socialist policy-continued high transfer payments and high taxes.… Read more »
boiled beef and carrots
boiled beef and carrots

That picture shows Gyurcsany, his press spokesman, two bodyguards and the chap who carries his diary. Why shldn’t he be smiling for the cameras of the state news agency(who ever heard of a politician doing anything as radical as that!). The people with him are the only people in the MSZP who aren’t trying to stab him in the back, no wonder he is satisfied.

Odin's lost eye
The biggest problem for the government is ‘Stagflation’ a stagnant or slow moving economy and inflation running, as far as I can tell, at 9-10% with accelerating bursts. As Mrs Thatcher found the cure is unpleasant but the quicker strict monetary control is established the less drastic the medicine. You have to be careful in choosing those elements of the economy to stimulate and have very strict controls over any government/European money used. Establishing properly ‘funded’ pensions and not paying the old from the contributions of the young could solve the pension problem. These funds need to be ‘ring fenced so that the Government did not raid them as Mr Brown in the UK did to boost the government’s income. In his/her contribution N.W.O comments *** “Longer hours damage safety and also employers, said Labour Ministry undersecretary László Herczogh, who led the Hungarian delegation. Moreover, “as only 56% of the working age population in Hungary has jobs, we are not interested in having those who have jobs work longer, but would rather have more people in work,” Herczogh explained.” *** This means that 44% of those who should/could work do not. I do not know how this measures up against… Read more »