This is the title Fidesz spin doctors gave to the speech of Viktor Orbán delivered on October 13 in which the Hungarian prime minister outlined his ideas about levying pretty heavy taxes, which he called "crisis taxes," on mostly foreign businesses. In this speech Orbán explained to his audience that "so-called analysts" always expect something new after each important date. A change in the government's policy. For example, analysts, especially foreign ones, were certain that after the local elections were over the government would do something, announce something, that would calm the nerves of foreign investors. But, said Orbán, his government is steady. It never wavers. He always says what he thinks and he sticks with his ideas which he translates into action.
This is a rather charitable description of what Fidesz was saying before and after the elections. Before the elections he said mighty little about its future policies. It was clear that Orbán's plans definitely included some kind of tax cut to be paid for by raising the deficit. However, he couldn't convince the European Union about the efficacy of his plan. After all, it was a miracle that Hungary managed to decrease the deficit from around 10-11% to 3.8% in three years. Now, going back to a higher deficit, especially after the Greek crisis, was not to the liking of the EU.
At this point Orbán had two choices. He could either continue on the course already set out by the Bajnai government, which by the way also included a very substantial tax cut, or he could get money from somewhere else to cover the cost of his tax cuts, which heavily favor the well-to-do. That's when he turned to levying extra taxes on banks and foreign-owned businesses. The foreign reaction was swift and negative. The Hungarian currency, the forint, that in earlier weeks had become a great deal stronger suddenly started to weaken, and analysts suggested that the government's decision to tax businesses showed that they were "shirking the opportunity to do proper and further reaching reforms." According to Capital Economics of London, the Hungarian government "could have turned their back on populist measures and taken the painful steps that will improve the sustainability of public finances."
The new taxes will raise 70 billion forints from the energy industry, 61 billion forints from telecommunications, and 30 billion forints from retailers each year. The government will also withhold transfers of social security payments to private pension funds for 14 months, saving 30 billion forints a month from November 1 on. The real plan, not quite openly revealed, is to nationalize about 3 million people's savings in these private funds and submerge them in the general budget.
These measures may not be enough to convince credit evaluators that Hungary's economy is on a new track. Morgan Stanley's analysts in London, for example, think that "neither the rating agencies nor the central bank will be impressed with measures which are anti-growth and temporary."
Stefan Wagstyl of the Financial Times wrote an article two days after Viktor Orbán announced his economic plans, the title of which was "Hungary: chilling times for business." Moreover, he questioned "how Orbán can build a credible long-term programme on the basis of such arbitrary actions." Of course, the question is rhetorical. He knows that one can't. He also noted that "the new taxes on the telecom, energy and retail sectors … are conveniently, mostly foreign owned." Another analyst, Preston Keat (Eurasia Group) thinks that this move "will hurt perceptions about Hungary's investment climate in general, and could have knock-on effects on growth and employment." Goldman Sachs's analysis is very similar. In addition, they formed the opinion that "because all of the proposed measures are temporary, fundamental fiscal problems are likely to re-emerge eventually, with negative consequences for fiscal sustainability and risk premia required on Hungarian debt." Capital Economics, another think tank, wrote that "the country is still walking a fiscal tightrope."
Yesterday the Wall Street Journal came out with an article by Margit Feher entitled "Hungary Still Lacks a Coherent Economic Policy." According to Feher, Orbán's parliamentary speech outlining the new government's second economic action plan "was a disappointment. It failed to prove that Hungary has a coherent economic policy for the coming years, with well thought-out plans for the most pressing fiscal issues." However, the country is in dire need of such a policy. Because Hungary refused a precautionary loan from the IMF, the country "is left to its own devices to ensure its financing from markets." A credible economic policy would be necessary to convince investors to put their money into Hungarian assets.
The new taxes will wipe out half of the energy, telecom, and retail sectors' profits. Even Orbán admitted that this is a "bad message" to investors. But he added that he is aiming at an economic growth of 4% to 6% in three years–above most economists' projections.
The Wall Street Journal allows comments. Most of the comments were reasoned and reasonable. But then came "justice," who claimed in very poor English that "Margit Feher is nothing but an anti-Hungarian evil unfortunately there are lots of them living abroad and painting false untrue picture about Mr. Orban and his cabinet. Viktor Orban is a top man & a top stateman. He’s the only person who can get Hungary out of this unpleasant situation where the previous lefty-liberal monsters put us! The vast majority of the Hungarian nation are behind Orbán. That’s why all these liberal-lefty-ex-communists hating him tying to undermine him discrediting him in foreign papers. GOD MAY GRANT US A BETTER TOMORROW & HUNGARY WILL FIND ITS OLD GLORY."
I wish that those who support Viktor Orbán would be just a little bit more objective and knowledgable. As for finding Hungary's old glory, all in capital letters, this is somewhat frightening. Which old glory does "justice" have in mind? Fifteenth century? The military glory of Matthias Corvinus perhaps? Instead of glory, I think that a well-oiled public administration and a functioning economy would be much more useful in the twenty-first century.