It was yesterday that Péter Oszkó, Hungarian minister of finance, and András Simor, chairman of the Hungarian National Bank, together representing the Hungarian government, met with Joaquin Almunia in the name of the Commission of the European Union to sign the latest agreement allowing Hungary to receive the third installment of the 6.5 billion euro loan from the EU. From the document it is clear that even tougher measures are expected from Hungary. Otherwise the next and final installment will not be forthcoming. The main demands are to: (1) stop all housing subsidies; (2) save forty billion forints by the time of the fourth installment on subsidies for the Hungarian State Railways (MÁV); (3) reduce expenses for running local governments by 120 billion forints; (4) introduce property taxes; and (5) reduce to two years instead of three government payments to new mothers.
As for housing subsidies, the government as of March planned only to reduce their size. That didn't satisfy the European Union. They want to put an end to all housing subsidies by July 1. Right now the government is thinking of a more modest plan that would allow subsidies for first-time purchases of apartments or houses by people under the age of thirty-five. The purchase price cannot be higher than 30 million forints. I can't see how that will satisfy Brussels.
The other sticking point is subsidies for young mothers. Parliament passed legislation that reduced the duration of the payments from 36 to 24 months, in keeping with the new EU demands. However, László Sólyom, president of the republic, refused to sign it. He wrote a letter to Katalin Szili, speaker of the house, in which he stated that in his opinion women should decide when they want to return to work. (Fair enough, but what does that have to do with the duration of government subsidies?) He considers women's employment important, but at the same time he thinks that the low birth rate and the problem of an aging population warrants the retention of the present practice. It is a well known fact that the ability of Hungarian women to stay at home with their children for an unusually long time didn't help the birth rate. Moreover, according to Klára Sándor, SZDSZ member of parliament, staying away from the workplace for three years reduces a woman's chances of returning to work. She claimed that the birth rate is higher in those countries where women's career opportunities are better.
Whatever László Sólyom thinks, it is unlikely that this piece of legislation will be scrapped, and not only because the European Union will not allow the current system to remain in place. Lajos Bokros just yesterday said in an interview that he didn't agree with László Sólyom, which may mean that most of the MDF parliamentary members will vote to keep the bill as is. SZDSZ made it very clear that they are sticking with their original decision. The mild-mannered Gordon Bajnai (one can only hope with some of the powers of mild-mannered Clark Kent, known to the world as Superman) said that he was sure that when the president fully understands the government's plans for establishing new day care facilities he will not object. My feeling is that Sólyom will have to swallow a big one and sign the bill.
As for the property tax. There is quite a discussion about what to call it. It was originally known as "ingatlanadó" (real estate tax) but is now referred to as "vagyonadó" (property tax) because it will be levied not only on real estate but also on other luxury items: planes, helicopters, expensive boats and particularly valuable cars. (I'd be curious to know how many Hungarians own any of these luxury items.) But the original bill (still under discussion in parliament) is very muddled. As it stands, it will be levied only on real estate worth more than 30 million forints. Real estate tax based on market value is an entirely new concept in Hungary and it seems that there is no way of assessing the value of structures and deciding which ones are worth more than 30 million forints. Therefore, the idea is that the owners themselves should declare the value of their real estate. I don't think that I have to tell what I think of this brilliant idea. Somehow I don't think that millions of owners of apartments and houses will do a self-assessment and rush to declare that they should pay real estate tax. The authors of this stillborn tax scheme answer such objections by saying that the Hungarian equivalent of the Internal Revenue Service will check returns (How? By targeting certain addresses and then going on site for an appraisal?) and that personal income tax is also paid on the basis of a simple declaration (and we know how high the collection rate is in Hungary). One thing is sure: some members of SZDSZ will not vote for the bill in its current form. They rightly point out that many people own more than one piece of property. So even if none of the houses or apartments is worth more than 30 million, the owners should pay taxes based on the total value of their real estate assets. The party thinks–or at least this is what Gábor Horn says–that property tax should be levied locally as everywhere else in the world. SZDSZ also suggests that locally levied property tax should be deductible from national income tax. So far so good, at least based on the American model. But SZDSZ doesn't seem to be concerned that until now not one word has been uttered about taxes on commercial real estate holdings. This revenue stream is vital to local governments, at least in the U.S. Another strange aspect of the Hungarian tax code is that land is not taxed. Wow! Wouldn't it be nice to own thousands and thousands of acres of land ripe for residential or commercial development! SZDSZ's vote is essential but, once again, the party is unable to speak in one voice. While Gábor Horn talks about opposition to this bill János Kóka promises full cooperation.
The reason for the new tougher demands is the changed economic climate. When the original arrangements were made the prediction was for a 3% decrease in the GDP. By now the ministry of finance's calculations are based on a slump of 6.7%. As for Sólyom, only yesterday he announced that without the help of the European Union the Hungarian government would have had to declare bankruptcy. I hope he keeps that in mind when he has to sign the child-support bill he currently objects to.