I thought you might be interested in the blog Ferenc Gyurcsány published yesterday. There is certainly interest in what he had to say about Viktor Orbán’s “economic policies.” Up to now 1899 comments were received.
We became guinea pigs because what Orbán calls “economic policy” is no more than an unbelievably risky experiment. There are several very weak points in the prime minister’s suggestions.
Let’s start with the philosophical portion of them. The gist of his message is that “public interest is good while private is sinful.” One immediately becomes suspicious because this is the claim of every despot. Especially when these people, full of self-confidence, act as if the interest of the public cannot be anything else but what they consider it to be. Their claim is that they are the only credible spokesmen of public interest. It sounds familiar, doesn’t it.
Democrats think differently. They say that society is divided along the interests of many different groups. There are millions and millions of different kinds of interests present at the same time in every given society. In addition, naturally there is such a thing as the public interest. But the more complex a societal group, the more difficult it is to determine what its common interest is. Surely, an unemployed worker will have a different notion about the public good than a manager of a company.
The definition of public interest is not the result of someone’s pronouncement but of discussion. Public good is not a statement but the result of many statements which in fact are changing with time. For example, what is the public’s interest before the tragedy of the red sludge and after?
A democratic society must find an equitable harmony of different interests. It acknowledges the variety of interests and tries to reconcile them. At times it gives primacy to one and other times to another.
Often the interest of the worker must be defended against that of the company. For example, we don’t allow workers to toil from morning till night even if that might be good for the company. We don’t believe that for the sake of law and order the state can do whatever it wants. The police cannot come without reason into our houses, the state cannot deprive us of our pensions if we had paid into social security earlier, and not even in a crisis situation can it decrease child support from one month to the next.
Orbán’s current message doesn’t recognize that the rights of the individual are just as important as the interest of the state. I might add that he didn’t always think that. For example, when he initiated a referendum against co-payment. Then he said that the interest of the people–that is, that they don’t have to pay–is more important than a well-run healthcare system that would serve the common good.
But here is something else. Orbán’s decision to “steal” our savings deposited in the different pension funds. This is unconstitutional. Tamás Bauer writes in Galamus.hu: “The Constitutional Court decided earlier that social security contributions must be treated as private property and as such must have constitutional guarantees.” The prime minister wants to take away our own property. If we allow him to do so, we deserve what we get.
But there are other problems with Orbán’s economic “package” as well. According to the Költségvetési Tanács, the watchdog over the budget, these extra taxes decrease consumption and slow growth while they increase inflation. It should be clear that these extra taxes don’t help to create new jobs even as the prime minister is promising one million new employment opportunities. (We might as well add here that the Költségvetési Tanács’s estimation is that one-third of the extra taxes, sixty billion forints, will be passed on to consumers. That is the same amount of money as two years of co-pay would have been.)
The greatest problem, however, is the continuing upkeep of the whole system. The measures the government is introducing will allegedly expire in 2012. Until then yearly 700 billion forints worth of taxes will be received. But only for three years. However, in exchange the government gave up other sources of income, mostly by lowering the personal income tax rates and some business taxes. Not for three years but forever. One doesn’t have to be a rocket scientist to realize that something is wrong here. In exchange for temporary revenues one cannot accept long-term obligations. But Orbán does exactly that.
What is the prime minister hoping for?
The answer is obvious. He can avoid a total collapse of the financial equilibrium in 2013 only if by then, if not earlier, he can substitute for the extra taxes levied on certain business sectors something else. What can the source of these revenues be? One must think that he is hoping that the tax cuts will stimulate the economy and therefore the budget will receive considerably more tax forints. But let’s calculate a bit! The table below shows what the size of the tax revenues will be in comparison to the gross national product.
On the first line we have the figures calculated on the basis of the convergence program. The last line shows that the Orbán stimulus package indeed creates a very substantial decrease in taxes: more than 5%. It is especially large when there is no more extra taxation on businesses and no more money comes from the withheld social security taxes. So how can that problem be solved? We have to assume that Orbán knows what he is talking about when he attacks the private pension funds and urges us to put all our social security taxes into the state budget. Let’s suppose that he is successful in this endeavor and 75% of the members actually listen to him and put their money into the common pot. Thus the state revenues will grow. By how much? The table below shows the results.
Well, even with that extra money there is still not enough. Tax revenues will still come up short of the necessary amount of 37% by 2%. So we examined by how much the economy would have to grow to compensate. The result was that in 2012 we would need 8.2% growth in the GDP and in 2013 a whopping 9.1%. Is this realistic? Of course not.
Therefore we took a look at what Fidesz can do under these circumstances. The simplest solution would be to play with the pensions. We suspect that the government will not return to the system of increasing pensions based on the Swiss model and naturally will not pay the so-called pension premium that was supposed to compensate the pensioners somewhat for the loss of their thirteenth month pension that had to be taken away as a result of the economic crisis. That would mean a certain amount of “savings.” On the next table we figured out the results of such fiddling with the pensions.
So what are our conclusions? That we are in big trouble. Fidesz set up a budget trap. Even if the government manages to convince 75% of the people to abandon the private pension funds, one would need an unimaginably high economic growth. If we add into the mix a reorganization of the pensions the situation is a bit better but not much. The figures we are arrived at are still unrealistically high: 5.4% in in 2012 and 6.1% in 2013. Who can believe that?
And we didn’t even mention that there are a number of things one ought to spend money on. For example, healthcare, education, the police force, local governments. Not a penny can go to them even if unimaginable economic growth is awaiting us.
So, the government led by Viktor Orbán is ruining us. A new brave world is coming.