It was at the end of November, 2008, that a new organization came into being: the Reform Alliance. It consisted of nine representatives of business associations, the president of the Hungarian Chamber of Commerce and Industry, the present and past presidents of the Hungarian Academy of Sciences, the former presidents of the Hungarian National Bank, and ministers of finance and economic development prior to 2002.
Considering that the Reform Alliance's suggestions had to have solid economic grounding, a slew of economists were invited to work on the project. Publicly only four names are known: László Békesi, briefly minister of finance in Gyula Horn's government and now a professor of economics; Attila Chikán, minister of economics in the first half of Viktor Orbán's tenure as prime minister, now also a professor of economics; Péter Oszkó, CEO of Deloitte in Hungary; and Éva Palócz, CEO of the Kopint-Tárki Economic Research Institute. Three of these (Békesi, Chikán, and Oszkó) headed workshops, each dealing with different aspects of the economy.
The long awaited report became available today, and in the building of the Hungarian Academy of Sciences the leading members of the Reform Alliance along with the above-mentioned four economists gave a press conference. And the reactions? Perhaps Ferenc Gyurcsány said it most succinctly: "It is impressive but in its effects on society is at times chilling." However, he added, the government will analyze the document line by line. He somewhat optimistically added that the government's and the Alliance's numbers for 2009 are closer than might appear at first blush. It is true, he said, that the government officially talked about a savings of 220 billion forints for the year, but they believe that the final number will be closer to 260-270 billion forints. That is not so far from the goal of the Reform Alliance, 330 billion for 2009. János Veres, minister of finance, mentioned two problem areas. First, he can't see how they could introduce property taxes in Hungary this year as the Alliance suggests. Second, he doesn't see where the funds will come from to cover the reduction in payroll taxes after 2009–by 3% in 2010 and an additional 2% in 2011. Gordon Bajnai, minister in charge of economics and development, cheerfully added that some of the Alliance's suggestions have already been adopted while others will be introduced shortly.
Fidesz wasn't that charitable. Péter Szijjárto, who by now is not just an ordinary spokesman but the director of communications, held a press conference this afternoon where originally he didn't want to deal with the issue. The press conference was held to announce Viktor Orbán's "international negotiations" and their results. Szijjártó stated that Orbán is planning to launch a common regional front (the so-called Visegrád Four, i.e. Poland, the Czech Republic, Slovakia, and Hungary) in order to receive greater financial assistance from the European Union. There are a couple of problems here. First and foremost, Orbán is not yet the prime minister of Hungary. Second, Ferenc Gyurcsány already made the same suggestion, and next week he has scheduled meetings with European politicians to hammer out an agreement. And there is a third problem: Orbán most likely wouldn't be a welcome guest in Slovakia. He did visit Poland and the Czech Republic, but according to a sarcastic remark by the prime minister, he went there to lobby for their support in his quest to hold onto his post as one of the vice-chairmen of the Christian Democratic International, an umbrella organization of 74 European conservative parties. Szijjártó also announced a new Orbán junket. This time to Berlin where Orbán will negotiate with important politicians of the German Christian Democratic Union and will also have a conversation with Chancellor Angela Merkel. Well, we will see about that. The last meeting with Merkel didn't quite work out the way Orbán planned.
Most likely to Szijjártó's annoyance there was a question from a reporter about the suggestions of the Reform Alliance. Szijjártó was adamant that no austerity package is acceptable. Nothing can be taken away from the people who are not responsible for the crisis. After all, laws provide for these social assistance programs and in a democracy one must obey the law. Moreover, the current economic crisis has nothing to do with thirteenth-month bonuses. The cause of the crisis is the government's ill-conceived economic policies. The real problems started with the austerity package of 2006. Well, that sentence took my breath away because everybody knows that the austerity program was critical in reducing the bloated budget deficit. I would hate think what the situation would be today if Hungary's budget deficit were still over 10%. As usual, the reporter was satisfied with Szijjártó's answer.
Back to the Alliance plan, described by many newspapers as "brutal cutbacks." The Alliance outlined a five-year plan. During this period the economists of the Reform Allliance suggest cutbacks in spending amounting to 1,350 billion forints. They would abolish entitlements as they now exist. Instead people would receive assistance, including child support, only on the basis of need. They would abolish the extra month of pension completely, not just incorporating it into the normal year as the government planned. They would raise the retirement age at a much faster pace than the government announced. In the next three years they would reduce payroll taxes by 10%. The lower personal income tax bracket, qualifying for an 18% tax rate (as opposed to the 38% rate for the more affluent), would include all those with incomes under 5 million forints, 2 million more than the government's suggested limit. Currently there is a flat rate of 1,900 Ft per month paid by an employee as his or her healthcare contribution. The Alliance would demand 5,000 Ft a month instead. The economists added that in addition to the 1,350 billion in savings another 1,000 billion could be saved by freezing government expenses at their current level. Attila Czikán claimed that the Hungarian educational system is "awful" and that another 20 billion could be saved while improving standards. Éva Palócz concentrated on such state enterprises as the Hungarian Railroads (MÁV) and the Budapest Transit System (BKV). According to her another 85 billion could be saved there. According to Péter Oszkó (Deloitte) the current disbursement of GDP is 50.5% as opposed to the Polish and Czech 42-43% and the Slovak 38%. Therefore it is clear that in comparison to the other three Visegrád countries Hungary is not competitive. The Alliance would like to lower Hungary's disbursement to 42.1%. According to Békesi such a move would ensure a 1.5% percent growth in GDP per year and it could even reach 3-4%. Their calculations are based on a forint-euro ratio of 260-280 and a 2.5% inflation rate. They think that Hungary would be able to fulfill all its obligations for entering the eurozone by January 1, 2012.
As Menedzsment Fórum, an online economic newspaper, summarized the current situation, neither the government nor the opposition will stand by the suggestions of the Reform Alliance because "they are afraid of social upheaval." My feeling is that the government will adopt some of the less draconian suggestions of the Reform Alliance in order to appease its framers. In the short term the work of the Alliance may benefit the government. The people may just think that they are lucky to have the government's proposal that is not so "brutal" after all in comparison to the "chilling" suggestions of businessmen and economists.