The salary of the chairman of the Hungarian National Bank and other possible problems

I noted earlier that among Viktor Orbán's 29 points was one that put a cap of 2 million forints per month on the salaries of those who head state-owned companies. Orbán felt it necessary to add that this restriction is also applicable to the chairman of the Hungarian National Bank whose salary at the moment is around 7 million forints.

I half jokingly said at the time that perhaps Orbán is hoping that András Simor will get so disgusted that he will resign, which would make Viktor Orbán very happy. But there might be a problem according an article that appeared in Index, a favorite internet newspaper. The article is signed by -dg-. I have no idea who he is, but my impression is that he is more than a journalist. He seems to be too well informed about matters most Hungarian journalists know little about.

According to -dg- the government can't change the salary of the chairman of the Hungarian National Bank because one of the important aspects of the bank's independence is its financial autonomy. Moreover, he adds, such a change in the salary of the chairman must be approved by the European Central Bank. A similar attempt was made by the Latvian government to reduce the salaries of the top managers of the Latvian National Bank, but they ran into trouble. The European Central Bank announced that fixing salaries within the bank is the bank's prerogative and part of its independence. The government may fix the salaries of a newly appointed chairman and vice-chairmen but not the ones currently in this position. If -dg- is right, the government can't do anything until 2013 when Simor's tenure comes to an end.

Admittedly, the Hungarian bank chairman's pay is extraordinarily high. He is making 8.3 million a month while Ben Bernanke's salary is $199,700 a year, which is about 3.8 million forints per month. Simor's salary can be compared to that of Mervyn King, the chairman of the Bank of England, or to that of Jean Claude Trichet, the chairman of the European Central Bank.

In addition to Simor there would be perhaps as many as a dozen important bank officials who would lose a great deal of money if the government succeeds in slashing their salaries. The vice-chairmen make 5-6 million, the members of the Monetary Council receive 2.9 million.

-dg- writes that if the ECB vetoes the attempt to slash the salaries in the Hungarian National Bank that would be the second setback for the government in its efforts to remove András Simor. The first idea was that his removal could be facilitated by the fusion of the Hungarian National Bank and the Hungarian Financial Supervisory Authority/Pénzügyi Szervezetek Állami Felügyelete (PSZÁF). But then, after taking a better look at the law, it turned out that the merger of the two organizations wouldn't solve the problem. Simor would still remain the chairman.

In any case, my feeling is that even if the ECB doesn't tie the hands of the Orbán government, Simor is stubborn enough and will stay. He is a rich man, and three years of "only" 2 million a month will not break the bank.

Péter Szijjártó immediately reacted to -dg-'s supposition about possible problems with the EU concerning Simor and his team's salaries. He announced that the government "will follow all the legal requirements and consult with all international organizations" involved with the Hungarian National Bank. Well, we will see. Because Szijjártó used the future tense I have the feeling that Orbán didn't quite think through the aspects of the question that concern the European Union.

László Kovács was the guest of Olga Kálmán yesterday. For five years Kovács was the European commissioner in charge of taxation. According to him there are a couple of items among the 29 proposed by Orbán that might be against Union regulations. One is the tax-free status of gifts to charitable organizations. According to him Union rules specify that VAT must be paid on any transaction. The second problem might be with brewing booze at home. Again, it is a problem of taxation. Excise taxes must be levied on all alcoholic and tobacco products.

Of course, I have no idea whether either -dg- or László Kovács is correct, but I assume that the former commissioner in charge of taxation should know what he is talking about. Since the 29-point program seems to have been hatched in only three days, there might not have been time to look into any possible constraints coming from the EU. My feeling is that there will be complications no one thought of.