A bit more math

As I predicted yesterday numbers are flying. And not just numbers but words too. To recap: Viktor Orbán and Mihály Varga held a press conference on Wednesday where they outlined Fidesz’s remedies for the soaring food and energy prices. They claimed that a drastic decrease in VAT (ÁFA) would not cost the central budget a single cent (or to be more authentic, a fillér). The loss of revenues would be amply compensated for by increased domestic consumption.

 

One didn’t have to wait long before Ferenc Gyurcsány responded with his own press conference. Like Orbán he didn’t come alone. But unlike Orbán he didn’t have a high-level economist in tow but rather an ordinary elementary school math teacher. The claim was that any sixth-grade student should be able to realize that Orbán’s proposition is nonsense. The school teacher stood in front of a blackboard and explained that if Mr.Citizen went shopping for food in the supermarket and purchased 1,000 Ft worth of stuff, at the checkout counter he would pay a total of 1,200 Ft given the 20% ÁFA. If that ÁFA were reduced to 5%, Mr. Citizen would have to buy 4,000 Ft worth of food for the budget to receive the same 200 Ft in revenues. Surely, said Gyurcsány, this is an impossibility. People will not buy four times more food than they do today. Here is a photo with the simple arithmetic on the blackboard.

Gyurcsany es afa

Meanwhile Fidesz altered their estimates. No longer do they claim that there would be no loss; rather, there would be a shortfall of only 120 billion as opposed to the government’s estimate of 320 billion.

 

As far as words went, Gyurcsány didn’t mince them. Of late he and his fellow MSZP politicians are less polite to the opposition and its leader. Gyurcsány no longer merely smiles when Orbán calls him an idiot. Among other things the prime minister said: “Somebody is betraying Hungary, somebody is selling his political integrity just because in the last few days his popularity sank by a few percentage points.” He added that Viktor Orbán, though not an economist, knows full well what the effects of his suggestions would be. This is “fraud at our [the country’s] expense.” Gyurcsány emphasized that he is not ready to be part of an irresponsible competition for popularity and that the government will do everything in its power to inform the people so they will understand the real situation.

 

As for the effects of the proposed VAT decreases one ought to take into consideration that in Hungary, just as in other less developed countries in eastern Europe, people spend a relatively larger part of their income on food and energy than in western Europe or North America. About 35-40% of  people’s income is spent on food, energy, and transportation. Thus lowering ÁFA on precisely these items would be especially devastating to the budget.

 

I also think that Orbán’s latest brainstorm is connected to his rather stunning loss of popularity. According to some observers Orbán, whose nose is pretty good when it comes to politics, fears a slow but steady erosion of popularity in the coming months. So food and energy inflation makes good political fodder. Unfortunately, what is good for the party might not be good for the country.