How to play with numbers: Orbán’s clever tricks

A day before yesterday I mentioned briefly that in addition to the extraordinary taxes on mostly foreign owned businesses (banks, telecommunications, energy, and retail chains), the government pulled a fast one by withholding payments due to private pension funds for the duration of fourteen months. According to calculations these new taxes on banks and businesses amount to slightly more than 2.5% of the GDP. By not passing on fourteen months’ worth of social security payments the government will receive an additional windfall worth 1.5% of the GDP. Thus, although on paper the Hungarian government will be able to show a deficit of no more than the promised and required 3.8%, the actual “spending money” will allow the Orbán government a great deal more leeway.

I would like to remind people that Viktor Orbán and his economic team based all their calculations on a deficit of 7.5%. That is, they wanted to convince the European Union and the IMF that the budget of the Bajnai government relied on phony figures and that the actual deficit is twice as large. Despite desperately trying to convince the EU financial commissioner and his staff of a much higher deficit, their efforts were in vain. The message was: “If you come back with a higher figure you will see what will happen. We might just cut off the subsidies you are receiving right now and out of which you are planning to launch the country’s economic recovery.” So, eventually, they had to realize that the original plan was not a workable solution.

And here comes a series of brilliant moves. The government still claims, especially when talking to audiences at home, that the budget was after all fraudulent and therefore they have to levy all sorts of new taxes in order to keep to the original 3.8%. So, let’s see what is probably going to happen. The current deficit, mostly because of the reckless spending of the new government, is 4.4%. Add to that figure 2.5% coming from the extra taxes and 1.5% from the pension funds. And here we go. They managed to accumulate plenty of extra money for tax cuts and other spending, allegedly to stimulate the economy. As much as if not a little more than Orbán and his economic advisors were projecting when they talked about a deficit of 7.5%. And the incredible thing is that most people, including spokesmen of the businesses affected, believe the story. They keep repeating that the temporary taxes are understandable given the “crisis situation.” Some of these people add that these measures will be beneficial only if the government uses this money to put the country’s economic house in order.

But is the government in fact using the money wisely? Here are some projects I have heard of in the past few months. The minister of defense wants to establish a reserve army and found a new military college. It reintroduced subsidies on natural gas consumption. It poured more money into MÁV, the Hungarian Railroad Company. The prosecutor’s office will get 250 new prosecutors. New county government offices will be set up and there have been talks about reviving an even smaller unit, the járás. All these new offices will need staff.

As for tax cuts: they are minimal for people in the lower tax brackets but substantial for the rich or well off. Business taxes on paper are a great deal lower than before (instead of 19% only 10%) but these tax cuts will affect very few people because only small businesses will receive the tax cut. And most of them haven’t been paying any taxes at all because their profits were very low or nonexistent.

There is talk about providing 100 billion forints in loans to the credit unions especially popular in villages where bigger banks have no branches. These credit unions at the moment have only a 5-6% share of the banking business, but because they are Hungarian owned Orbán favors them. He is planning to make these credit unions the vehicles of the New Széchenyi Plan.

Foreign reactions to the Orbán-Matolcsy plans are not at all favorable. The forint immediately weakened and it hasn’t recovered since. The European Union has already inquired about the tax on telecommunications, something that is forbidden by Brussels because Europe considers the sector vital for the economic growth of the Union. According to The Street.com (New York) “markets have given a big thumbs down to the austerity measures announced by Hungary this week.” The suspension of the social security payments to private pension funds “has raised eyebrows, as this is the sort of accounting gimmick that only serves as window dressing.” And these financial gurus don’t even realize that a nationalization of the private social security funds might be in the offing.

Today Viktor Orbán named Gabriella Selmeczi (Fidesz MP) “commissioner in defense of social security” charged with an investigation of “losses people suffered” because of the private funds. Two days ago we were told that the retention of the social security payments was necessary to bring the budget in line. Today the story morphed: “the government must act very quickly because otherwise a situation might develop similar to what happened in the United States with Lehman Brothers.” If they don’t move immediately, the social security payments will simply disappear. I’m afraid the people may also believe that story.

 

 

My feeling is that some of these latest moves of the Orbán government might not be acceptable to the European Union. Actively supporting Hungarian-owned credit unions against foreign-owned banks is certainly against the rules and regulations to which Hungary is supposed to adhere. Putting your hands on other people’s money without their consent should certainly be unconstitutional. In any case, the spokesman of the association representing the private social security funds said that they will fight in all international forums against this arbitrary move of the new Hungarian government.

The Austrian retail chains are up in arms and I’m sure that the rest of the multinationals will follow. Although the government insists that the affected companies will not pass the cost on to consumers, normally this is the case and the government has no way of preventing it. Ordinary Hungarians who hate the foreign banks and businesses in general might be very happy right now because they believe that the government is taxing the rich and defending their financial interests, but they don’t realize that these taxes will be paid by them even if indirectly.

What will happen to the Hungarian economy in the long run? I don’t think that Viktor Orbán worries about the future. He wants popularity now, and he has it.

 

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Paul
Guest
Eva, I wish you’d stop having a pop at MÁV. From a British perspective, the Hungarian railway system is still pretty impressive. The rolling stock may be decrepit and the trains slow, but you can still get a train to almost anywhere – and still at a reasonable cost. And it’s a very long time since you could say that in Britain. But, now the motorway network has been extended (and one wonders what could have been done with the railways for the same money) and car ownership is increasing, the number of well-off people using the trains (outside the Budapest commuter area) will decline even further. Any attempt to cost-justify the railways or privatise them will have the same result – only the mainlines between the big cities and the busiest Budapest suburban lines will survive. And, even in these days of mass car ownership and relative wealth, a huge number of people still depend on the railways (and the excellent busz service) to get to work, visit relatives, go to the strand, etc. If OV wants to improve the railways, or at least protect them, even at the cost of huge subsidies, then good on him. If your… Read more »
latefor
Guest

Paul- Re: “Gods of cost-justification and privatisation”
It is good to see that Victor Orban understands that free market economy without some kind of government control does NOT work anymore.
Just look at the social costs of the last 30 years….the encouragement of individualism at any cost vs caring for others etc. etc.
It is time for a positive change, the more humane kind.

Johnny Boy
Guest

Almost every single number in this post is wrong. As are the deductions. More on that “tomorrow”.

Johnny Boy
Guest
The author of this blog just ignores every source that proves her wrong, but readers may be interested in how the “there are no skeletons” delusion on which the whole post is based fails: http://www.rodin.hu/hir/nyilvanos-a-tenyfeltaro-bizottsag-jelentese-minel-elobb-be-kell-vezetni-az-eurot Now on to correcting the false numbers. Hungary’s annual GDP: ~25.000 billion HUF Bank tax: 200 billion HUF Tax on companies: 160 billion HUF Pension redirected (whole year): 360 billion HUF Money needed for tax cuts: ~350 billion HUF So all new levies combined amount to 360 billion HUF (1.5% of GDP), the same as the pension money (another 1.5%). These taxes are to rebalance the budget whose gaps consist of the skeletons and the money for the latest catastrophes (flood and red sludge). Without them, budget deficit would be 5.4% now. The withheld pension money is to finance the tax cuts, as originally planned. If the EU denies fair consideration, there are other ways to do this, and the example was set by Estonia who did exactly the same a year ago and are now entering the Euro zone. (Thanks for the idea guys.) The post cites foreign opinions as some kind of sources of credibility. However, with at least a slim talent for… Read more »
John T
Guest

Paul – I think there are reasons to have a pop at the way MAV is being run, and the services are certainly not as punctual as they once were. But, if Hungary uses EU funds properly and modernises the trains and infrastructure, then people will hopefully use the trains more often. Additionally, there should certainly be scope for the Government to push rail travel and for MAV to introduce a better fare structure. I think a key initiative would be to develop a proper suburban rail network around Budapest. The basic plans for the M5 metro effectively set out how this could be done. And of course increasing freight traffic would help, though it would probably require a lot more double tracking.

John T
Guest

“The author seems to think that everyone inside Hungary is stupid, including company and bank leaders who accept the levies; this attitude makes me pityingly smile.” Johnny Boy – Whereas from your comments, it could be inferred that you think everyone outside of Hungary is stupid.

GW
Guest

Eva wrote: “Although the government insists that the affected companies will not pass the cost on to consumers, normally this is the case and the government has no way of preventing it.”
Absolutely. In low margin but stable demand businesses like retail supermarkets, there is no place the costs can come from but from increased prices. A chain like Tesco, which opened in Hungary with shelves full of imported brands which proved to be too expensive for their customers, now has only a small selection of imported food products, and instead they have become one of the major purchasers and retailers of local goods, often under their own label, which are then added to the Tesco international product line. The ramifications for Tesco’s domestic prices and the prices of Tesco’s Hungarian-made products retailed abroad cannot be positive.

Sandor
Guest

The fiddling with the numbers can be argued either way, but whatever those numbers are, it cannot be denied that the government micro-manages the economy on the one hand and recoils from dealing with the system and its faults.
This will, perhaps, lead to temporary relief for a year, or a few months, but will compound the anomalies of the entire economy.
Is here anybody who believes that the embezzled pension money will be repaid in fourteen months?
Because there will be this money and the accumulated fourteen months’ obligation owed at that time. Even if there would be no interest owed on it, this will be a compounded amount: the 30 billion and whatever is added during those fourteen months.
This is quick cash now and a walloping head ache later.

Johnny Boy
Guest

John T: “Whereas from your comments, it could be inferred that you think everyone outside of Hungary is stupid.”
Not stupid – counter-interested. But I made that already clear in my post, maybe you should read more carefully.
Sandor: “This will, perhaps, lead to temporary relief for a year, or a few months, but will compound the anomalies of the entire economy.”
How things turn out in the long run is an entirely different story. If the economy starts to grow, it can repay the money that seems to get lost now.
Many people make the mistake of criticizing the new taxes because “they only put out the fire” but don’t reform anything. But they are not to reform but to put out the fire!
Don’t demand long-run strategy INSTEAD OF these taxes. Without the new levies, no long-term strategy can even start. (And there’s the New Széchenyi Plan for it anyway.)

An
Guest

@Johhny Boy: “Also, someone with the slightest talent to politics won’t claim things such as “he [Orbán] wants popularity now, and he has it” – considering he won everything that could be won and there are no elections in sight, now would be high time to take unpopular actions if needed. For what would he want popularity now? Come on.”
This has nothing to do with politics; Orban has a pathological need to be popular (and be admired).
I don’t know when the right in Hungary will realize that their conservative/patriotic agenda has been hijacked by a seriously disturbed personality.

Odin's Lost Eye
Guest
Mr Latefor I will agree with you. Governments cannot control the market. Whilst demand/supply appears to me controllable they are actually very chaotic (see Chaos Theory – ‘strange attracters’). One of my specialities was Inventory control and forecasting systems. GW – they do not know just how right you are. In the supermarket business the Nett margins on any individual item line are cigarette paper thin. It is only the total volume and the supermarkets management ability to manage their stock turn ratio and minimise waste which gives them their good return. I think that the Hungarian Government expects other stores, outside Hungary, to subsidise the Hungarian tax. I fear that there will be disinvestment. John T After the local killjoys (in the name of safety) destroyed all forms of model boating/flying. I became very interested in railways. I have (to date made two steam locomotives which take about 5 to 7 years to build). During this time I learned a lot about railways and railway operations. These are so deeply rooted in the past that railway men do not see public need as a priority. Because of government and accountants’ interference they ignore all sorts of business opportunities. They… Read more »
Johnny Boy
Guest

An: “This has nothing to do with politics; Orban has a pathological need to be popular (and be admired).”
This is your pathological opinion of zero value, void of any factual content. It shows that I’m right when you have no other way of countering me than such balderdash.
“I don’t know when the right in Hungary will realize that their conservative/patriotic agenda has been hijacked by a seriously disturbed personality.”
I don’t know if Hungarians recognized that their whole country has been hijacked by a seriously disturbed personality, but to play it safe, they sent him packing last Spring, and his kin this Spring.

An
Guest

@Johnny Boy: I wasn’t trying to counter you; I was trying to warn you.
And you are right; this is my opinion. Take it as an opinion.
I do not know about Gyurcsany, but even if he has personality issues, it still doesn’t make Orban any less of a disturbed personality. And right now Orban is the one who is running the country, Gyurcsany is history.

Kormos
Guest

An:
I gather you are a professional who deals with mental cases. Yet, the wording of “seriously disturbed personality” is a bit ambiguous to me. Could you provide us with a better diagnosis? Also could you tell me who twisted the arms of the voters, who gave very clear and undisputable majority for the present Government of Hungary?
Also, why do you think that the populous of a country should elect only candidates who have documentation from independent experts, stating that they are definitely not “seriously disturbed”.
Could we agree that all politicians want to be elected, therefore they seek popularity?
Should you be unable to back up your earlier statement, please rescind it and apologize publically!

Eva S. Balogh
Guest

Kormos: “An: I gather you are a professional who deals with mental cases. Yet, the wording of “seriously disturbed personality” is a bit ambiguous to me”
There are signs that there isn’t everything quite right with Orbán. His total depressions after a defeat, for example. He disappared for months after the 2002 and 2006 elections.
I’m fairly familiar with maniac depression because we had a person with this psychological problem in the family and people who suffer in that particular illness are either in the deepest depression or once the depresssion phase is over, they are superactive. When depressed they don’t even want to get out of bed but once they recover they are madly busy.
Orbán’s disappearences naturally gave rise to speculations. I’m not surprised because it is not quite normal to be so upset because of an election defeat that he is out of sight for months. Or at least a politician should take all this in stride.

Johnny Boy
Guest

Of course Orbán never disappeared for months after these defeats, he even gave public speeches at Fidesz gatherings (for example on the 7th of May, 2002); this is only wishful thinking of the frustrated left because they can’t bear that the leader of the conservative wing is not like their hero Gyurcsány, who is suffering from narcistic personality disorder.
Everything is quite right about Orbán; truth is, usually those people who think Orbán is not right are in some social or psychological trouble.

An
Guest

@Kormos: “Could you provide us with a better diagnosis?”
Perhaps, but this is obviously not the place for it.
“Also could you tell me who twisted the arms of the voters, who gave very clear and undisputable majority for the present Government of Hungary? ”
I didn’t say that their arms were twisted.
“why do you think that the populous of a country should elect only candidates who have documentation from independent experts, stating that they are definitely not “seriously disturbed”.”
I didn’t say politicians should have documentation like that.
Now that you keep twisting my words, what kind apology are you exactly expecting?

Johnny Boy
Guest

An: you forgot to mention that Orbán is a gypsy, he is battering his wife and loses his children on the roads.
Just to fully utilize the left’s arsenal of coherent and sophisticated reasoning.

Paul
Guest

A Gypsy? My wife thinks he’s Jewish!

Kormos
Guest

Congrats Folks. You are doing a great service to our Country. Innuendos and more innuendos. The English speaking world is now enlightened. The Prime Minister of the Republic of Hungary is not only unable to walk on water, but must eat; sleep and (God forbid) visit the toilet from time to time. His Gipsy and Jewish ancestry will ensure a proper and modern Constitution, unless a bounce back from his maniac depression will make him to declare Orbanistan, a victorious; national socialist and communist dictatorship.
I know none of you single handedly wrote above things, I just surmised based on what I read.
No need for apology. It would not be an honest one anyway.
I take a bow.
So mote it be.

Johnny Boy
Guest

Paul: if he were Jewish, the author of this blog would love him instead of hating him so much.

Eva S. Balogh
Guest

Johnny Boy: “if he [Orbán] were Jewish, the author of this blog would love him instead of hating him so much.”
How interesting. I wonder what is behind this “observation.” I hope not a certain bias on the part of our Johnny.

Johnny Boy
Guest

Eva: “I wonder what is behind this “observation.” I hope not a certain bias on the part of our Johnny.”
No, it’s actually about your bias I think.

Eva S. Balogh
Guest

I think Johnny’s comment about my alleged philosemitism says more about him than me. I don’t give a damn about one’s ethnic or religious background. Or, by the way, whose father was what.
As for Bauer and his behavior in the last eight years, I strongly suggest to you to listen to some of his parliamentary speeches or his writings during this period. Every time you open your mouth it becomes clear that you are grossly underinformed.

Johnny Boy
Guest

“Every time you open your mouth it becomes clear that you are grossly underinformed.”
Am I mistaken when I think he was a member of the governing party SZDSZ until 2007?
Am I mistaken when I think he is, in theory, an economist?
Am I mistaken when I think he didn’t break with SZDSZ in 1994, when most democrats did, upon SZDSZ’s betrayal of the regime change when they sided with the former state party to have their influence on finances and media?
What else is needed to know about him? This tells more than enough.

Johnny Boy
Guest

One more little comment on a current issue:
http://index.hu/belfold/2010/10/18/szazadveg_a_kormany_jol_kezelte_a_vorosiszap-katasztrofat/
According to a recent poll, 50% think that the government did well on handling the red sludge situation. Other 36% think they did very well. 85% thinks that it was a good move to take the company’s assets under governmental controls.
Good, nice. Shows how different you ‘think’ than the mainstream. Luckily, most people are not deceived by pure hatred.

Leo
Guest

What is mad, what normal? And should we use the same criteria for politicians as when looking in the mirror?
In Orbán´s case I wonder about his Napoleonic stance, and the maximum number of national flags a normal person would pose with. And if that is just a matter of bad taste, I wonder about his hate-speak, or his propensity to identify with the nation. Is it normal?
Apart from this behaviour, there is much in his policies that I find hard to explain on a rational level. That goes even beyond sheer self-interest or short-sightedness, and seems to be driven by a deep sense of frustration and lack of self-control. I wonder, is it normal?
There is no prove that Orbán has mental issues on a clinical level – so we should assume there are none. But on a political – and eventually historical – level that is not the whole story.

Eva S. Balogh
Guest

Leo: “and the maximum number of national flags a normal person would pose with.”
Ten flags every time he appears. Foreign papers commented on the absence of the flag of the European Union. The ten flags tell a lot about this man and his government.

Johnny Boy
Guest

Leo: hate-speak is something you very apparently exercise, for example when referring to Orbán’s height.
I rarely see an ‘argument’ that primitive!
You don’t have the slightest cue about his behaviour. You think you have but what you see is only your hatred blinding you from the truth. Each single journalist who has met Orbán said that he was friendly, down-to-earth, reasonable and coherent.
It’s Orbán’s haters who have frustration and trouble on a psychological level – and these symptoms have strengthened now that, despite all of the haters’ efforts, Orbán won practically everything that there was to be won.
It must be very hard to face the truth that the sane vast majority’s minds work otherwise, but life is hard.

Leo
Guest

Johnny Boy, I was not thinking of Napoleons lack of height, but of his attempt to compensate it.

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