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.