Reactions to the Hungarian “action plan”

A well known on-line newspaper, Origo, reported that Viktor Orbán and his economic team had abandoned their original strategy that included a higher budget deficit even before the ill-fated statements of Lajos Kósa, Péter Szijjártó, and Mihály Varga. Or at least this is what "a person close to the Fidesz leadership" told Origo. In fact, all those stupid references to Greece were meant to serve as an introduction to Plan B, i.e., the 29 points.

Perhaps (though I doubt it), but Plan B remains largely a series of bullet points, not a carefully structured economic program. In another article written about five hours later one of Origo's reporters asked György Matolcsy about some of the details of the "action plan" and even he, allegedly the father of the plan, couldn't answer. For example, he admitted that the details of the "family friendly" taxation haven't been worked out yet. Thus, I very much doubt that anyone can say much about the effectiveness of the "action plan." Will it really stimulate the economy? Can the 3.8% deficit be maintained? No one knows because Viktor Orbán's speech contained very few details. Péter Oszkó, who should be very familiar with the 2010 budget, admitted that he simply doesn't know the mathematics of the "action plan."

Whether the government can come up with more details before their meeting with the IMF representatives I don't know, but I doubt it. The regular meeting was supposed to take place in May, but it was postponed to June because of the elections. So, the Orbán government has only a couple of weeks to prepare for the meeting. If details on certain parts of the tax system are still unknown, it is difficult to imagine that they will be able to present a full acount of this "economic system" to the IMF in a couple of weeks. Especially since there are talks about preparing an entirely new budget. One could ask: how on earth can they accomplish all that? I suspect only sloppily, but somehow I don't think this will impress the number crunchers at the IMF.

Even observers who are friendly to Fidesz call attention to the neo-liberal aspects of this new economic strategy and point out that the "populist" talk of the last few years is gone. Orbán returned to his policy between 1998 and 2002 that favored the better-off segment of society. The clear beneficiaries of this system are the well-off owners of small and medium sized businesses and well paid employees in the private sector. The poorer strata are losing big time. Economists of MSZP figured out the exact figures which Ildikó Lendvai shared with György Bolgár this afternoon. I will provide these numbers once they are available in the transcript version of Bolgár's interviews on www.galamus.hu.

The other very questionable part of the "action plan" is the enormous tax levied on banks as well as leasing and insurance companies. Apparently their profit last year was 400 billion forints, half of which would be taken by the government. Surely, these institutions will not take this lying down. But even if they did, what would that do to the services banks are supposed to provide? Tighter credit will not stimulate the economy. On the contrary.

The trade unions representing the civil servants are also up in arms because Orbán negotiated only with businessmen and not once with the representatives of the employees. Orbán is not the kind who negotiates. He dictates. The question is what all this will do to him and to his party politically. Perhaps for a while the Hungarian people, not terribly savvy when it comes to money matters, will be dazzled by the sound of the 16% flat tax and the punishment meted out to the banks, but when the details are known and many realize that their take-home pay will be smaller than before perhaps they will be less enthusiastic about "Viktor."

For the time being some analysts praise Orbán as a magician who was able to sell an austerity program in the guise of a stimulus package. But the devil is in the details. And this is true both about the presentation to the IMF and the realization by the vast majority of Hungarians that perhaps they were fooled.