Full speed ahead

The summer doldrums are over, and fall (I don't know why I always equate it with the start of a new school year rather than the official date on the calendar) promises to be especially envigorating. Gyurcsány, whom I at one point compared to Nicholas Sarkozy, has incredible energy. Especially after a couple of weeks of vacation.

In the morning the minister of education and culture, István Hiller, in the presence of the prime minister announced a six-year program to refurbish schools that sorely need fixing up. A quarter of all schools were built prior to World War I. (My high school was a bit older than that. The oldest part of the structure was built in 1851.) The money for this particular project comes from European Union subsidies. Originally, the government planned to spend about 40-50 billion forints, but so many applications arrived (1109) and of them so many were considered worthy that eventually the amount was raised to 80 billion. Altogether 253 schools will be modernized. I was happy to see that most of the schools receiving money are situated in the poorer regions of the country. In Budapest only three schools will be renovated under this program.

In the evening Ferenc Gyurcsány had a meeting with members of the MSZP delegation to inform them about the government's plans for the next year and a half. Ildikó Lendvai, head of the delegation, gave a press conference afterwards during which she categorically denied that the government had authored a new program. Rather, the original program will be continued: the government will try to boost the competitiveness of the country, increase the number of new jobs, and initiate welfare reform (hoping to wean people from welfare to work; as part of this reform they plan to fund work programs).

Of course, everybody was interested in tax reform. But since the prime minister's article on that topic will appear in tomorrow's Népszabadság, Lendvai refused to divulge the details. But who can keep a secret in Hungary?  By late evening internet sites started to report leaks. But they were trumped by HVG, the respectable economic weekly, that managed to get a copy of the article and published it online. Anyone who reads Hungarian can find the Word document complete with colorful graphs: http://tinyurl.com/5kwvmw As usual it is a thorough, well written, and thoughtful piece. It shows a great deal of preparation and a general familiarity with the European situation as well as the economic details of the region.

I don't want to summarize Gyurcsány's paper here. However, some points are worth mentioning. The government will continue to enforce a more rigorous tax collection program. The laxity of tax collection in Hungary is incredible. The list of people who owe billions is known, but the ÁPEH (the Hungarian equivalent of the U.S. Internal Revenue Service) can't collect the unpaid taxes and has no authority to punish those in arrears. If U.S. laws governed tax collection in Hungary, hundreds if not thousands would be sitting in jail. However, since 2006 there have been more frequent visits from ÁPEH, more returns have been checked, and it seems that the results are promising if not ultimately satisfying. More money finds its way into government coffers than before. The collection of medical insurance payments was also very lax. A lot of people for years didn't pay a penny and received full coverage. No wonder that the Health Care Fund was always in the red and the shortfall had to be made up from the budget. That was also remedied and this past year there was even a surplus. For the first time in who knows when. This stricter regime will continue, and there will also be a serious effort to decrease the size of the black and grey economy, which is substantial in Hungary.

In addition, the government is planning to reduce taxes by 1,200 billion forints within four years. There is some tax relief for individuals (mainly in a rejiggering of tax brackets), but the lion's share of the cuts is directed at businesses. Next year employers won't have to pay the "solidarity tax," currently 4% of their taxable income. Moreover, their contribution to the health and pension plans of their employees will be reduced by 4-5%. On the other hand, corporate taxes will be raised from 16% to 18%. Whether this is enough for SZDSZ to vote for the budget in December we don't know. However, János Kóka a few days ago wanted to have a tax savings of 1,000 billion forints in three years. This seems pretty close.

Tomorrow I'm sure the media will be full of predictable reactions to Gyurcsány's proposals. Orbán will remain silent; at the moment he and his wife are in the United States basking in glory. He will visit former president George H. Bush and will attend the Republican National Convention.

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One one hand “the lion’s share of the [tax] cuts is directed at businesses”, “On the other hand, corporate taxes will be raised from 16% to 18%.”
I am not sure I understand the logic of this action. Why give something and then take it back immediately?

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