“A nice little essay”

This is what an economist and former minister of finance, Mihály Kupa, called Ferenc Gyurcsány's piece entitled "Compact." Why compact? Because, as Gyurcsány explains, what is at the core of Hungary's current problems cannot be remedied by a simple tax cut. The whole political and social culture of Hungary must change. And for that there must be understanding, cooperation, and agreement between the government and the country's citizens.

This is of course nothing new in Gyurcsány's political messages. Ever since he became prime minister he has kept repeating that people's attitudes must change. Some people I know who are actually quite liberal and well educated find all this talk about "re-education" unacceptable. The Hungarian people are what they are. You can't exchange them for something better. Moreover, this mantra reminds some people of the agit-prop (népnevelés) work of the socialist regime, especially in its early days when a new type of socialist man was going to be forged. In a way a new kind of man did emerge after about forty years of socialism, but most likely not the kind Stalin-Rákosi-Kádár had in mind. This new kind of man demands that the state care for him while he himself doesn't want to contribute anything or at most very little for sustaining the level of support that he demands from the central coffers. Gyurcsány described the Hungarian attitude: they want to pay as little in taxes as the Irish (36.7%) and receive as much of the GDP (56%) as the Swedes. As he said: "This doesn't float."

Another aspect of Hungarian life that doesn't sit well with him is what in German is called Schlamperei (sloppiness), a description that aptly described the state of affairs during the Austro-Hungarian Monarchy. This "sloppy" attitude is all embracing: there are rules, many and complicated, but they are either ignored or circumvented. Hungarians go to great lengths to find loopholes in the law and thus avoid obligations. Gyurcsány here as elsewhere says that this will not do. With freedom comes responsibility, and the government has to be strong enough to enforce the law. Yes, he says, we will try to lower taxes, but there mustn't be a disconnect, as there is now, between paying taxes and receiving benefits.

After reading the "nice little essay" from beginning to end (something I couldn't do yesterday) I am struck by Gyurcsány's candor about the limitations of his tax reform program. He acknowledges that lowering business taxes will not prompt companies to hire more workers in the short run. And since the employment rate will not immediately rise, the amount of personal income taxes paid will not be significantly higher either. In order to offset the shortfall in tax revenues the Hungarian government must reduce the black and grey economy (currently about 20% of the GDP) to 10%, the European average. That would mean an extra 1,200 billion forints a year in tax revenues. This would be more than enough to lower taxes by about 300 billion a year as he proposes. Moreover, even if the government is unable to eliminate as much of the illegal economic activity as projected, the first year's maximum revenue loss of 300 billion forints will not upset the planned deficit reduction because the budget has 300 billion set aside for emergency purposes.

The reactions to the "nice little essay" are predictable. According to Mihály Varga, it is no more than "trickery" although some of the ideas, like reducing the size of the black economy to ten percent, were first uttered by Viktor Orbán himself. Ibolya Dávid is convinced that SZDSZ will find this proposal acceptable and sees a new coalition (even if not official) emerging. The SZDSZ spokesman this morning, though negative, added that their experts would have to analyze it, and SZDSZ would formulate its answer after consultation with them. One of the SZDSZ experts, Péter Mihályi, the ill-fated health-care reform's father, said that although he didn't think 1,000 billion could be saved by eliminating half of the illegal economic activities, Gyurcsány himself considers his piece only a starting point. He expects that discussions will follow.

This weekend the SZDSZ top brass will mull over the proposals. I think the plan has merit, although I have the feeling that Gyurcsány and MSZP will have to compromise on expenditures for social welfare. Currently 50.1% of the GDP goes to education, healthcare, pensions, etc. He would like to reduce that number to 43-44%. That is still more than some of the other countries in the region spend. At the same time he would like to reduce taxes by 3-4% to 35-36%. I'm curious what the final shape of these proposals will be.

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“After reading the “nice little essay” from beginning to end (something I couldn’t do yesterday) I am struck by Gyurcsány’s candor about the limitations of his tax reform program.”
After he admitted that they (the political class?) lied in the morning and lied in the evening, I expect nothing but candor from Gyurcsány. And for that important reason alone, I am starting to like the guy.


Agree with your comment!
As a born Dutchman, but living for years in Hungary I conclude that in the mind of Mr Gyurcsány and his left wing side government, Hungary consist of two countries. One is Budapest with high lighted people as an example to the world, and the remnant the less league of Hungary what longing under this government.
Lies over lies and no compassion with those who need attention.


For a somewhat different view of Gyurcsány’s tax reform – which, as initially advertised, I am strongly in favour of – take a look at this:

Odin's lost eye
Professor A former failed minister of finance has used the title of your piece as a mean and derogatory term of contempt for Mr Gyurcsány. Mr Gyurcsány’s analysis of the situation is good and makes sense. You also say *** “This “sloppy” attitude is all embracing: there are rules, many and complicated, but they are either ignored or circumvented. Hungarians go to great lengths to find loopholes in the law and thus avoid obligations.” *** It was a continuous howl of the militant wing of the Old Labour party in the U.K. that people were using the rules to avoid paying tax. Why not? If the rules say that you can claim a tax rebate for buying something you need then buy it and claim for it. There is a worse sloppiness than that you refer to. It is the attitude to workmanship. The idea of quality and pride in workmanship is sorely lacking at all levels and in all industries/commerce. I read a bit about one Attila Kulcsar and his buddies had ripped off a bank and the government for an astronomically large sum of money. To be able to do this shows there must have been a total… Read more »
Eva S. Balogh

Odin: “A former failed minister of finance has used the title of your piece as a mean and derogatory term of contempt for Mr Gyurcsány.”
If you knew Mr. Kupa you wouldn’t think so. I think he meant it. In fact, I’m sure he did because next day in an interview he defended the whole package and explained to the reporter who is no fan of the prime minister that the reporter doesn’t even understand what he is reading. Knowing Kupa I was waiting him to say: “Gosh, considering that you have a degree in economics you’re ignorant.” He was close to it.


“This is another cynical and (as yet) unfounded attack on Mr Gyurcsány”
I have to admit I don’t know what is going on at portfolio.hu, the piece I originally linked to was obviously ed-op but it wasn’t by-lined.
However, the figures seem to follow from those reported from a Gyurcsány press conference:
Which itself seemed to be a response to a sceptical public opinion poll:
So Kupa(?)’s piece doesn’t seem to be unfounded, though it is definitely cynical.

Eva S. Balogh

Adrian, I’m a bit confused by now. Mr. Kupa is a smart guy and very outspoken. He is funny, but he is not cynical. Moreover, I think that he likes Gyurcsány’s proposals. I think he has a respect for his grasp of economics.

Odin's lost eye

I must apologise to all. I took the title to be ‘ironic’. The problem is that when you are being ironical in English you use a special inflexion and tone of voice. Which somehow does not come thorough in the written word. I thought the title was ‘damming with faint praise’ like one’s grand mother saying “very nice dear but…..”
I am more worried about the general slackness or sloppiness in the ‘system’, which allows things like the Attila Kulcsar to occur.


Odin, Eva
Just to make absolutely clear we are on the same wavelength, the story I first linked to was titled:
“The Great Hungarian Tax Swindle or: How to sell a never-existed reform”
There is no mention that this article is by Kupa.
Odin, having re-read your post I think you are referring to two different articles, the Kupa one and the Portfolio.hu one, could I have a link to the Kupa article please.