Flight of Hungarian money?

At least this is what one hears. Apparently some people are seriously thinking about moving their savings, currently in Hungarian banks, out of the country. And the Austrian banks are ready to receive. Burgenland, the Austrian province bordering on Hungary, is dotted with billboards inviting Hungarians to deposit their money in Austrian banks where "it is safe." This can happen if a government in an illegal manner expropriates assets belonging to individuals. Because people say to themselves: if they could do that to my savings in the pension funds why couldn't they do the same thing to my bank savings? Most likely the worry is unfounded, although by now I can imagine almost anything. A few months ago who would have thought about the expropriation of about $13 billion that had accumulated in private pension funds over the last twelve years?

Anyway, the bug has been planted in people's heads and I wouldn't be at all surprised if a fair number of people make a little trip across the border to Austria for the purpose of transferring money to a foreign bank. Ferenc Gyurcsány wrote about this in his blog a couple of days ago. He recalled the late 1980s when people with their $50 allowance in hard currency packed up the whole extended family in their Trabants or Wartburgs and headed to Vienna where on Mariahilfer Strasse there were signs in Hungarian: "Our salespeople speak Hungarian." The big items then were Gorenje freezers. The pilgrimage was necessary because there was a shortage of appliances in Hungary.

Now, the shortage is in trust in the Hungarian government. And after the flight of money might come the flight of people, especially since soon enough Hungarians will have free access to the German and Austrian labor markets. As it is, this year half of the newly graduating physicians left the country. The association representing the newly graduated doctors claimed sometime early in the year that if they were just given slightly higher salaries they would stay in Hungary because after all they are patriotic Hungarians who feel best in their own country. Well, it didn't work out that way because patriotism is not enough. I can't even blame them. Abroad they will get good training, perhaps better than in a Hungarian hospital, and they will get much better pay even as interns in a hospital.

As for the expropriation of savings that accumulated in private accounts, it seems that the European Union will tolerate it although it is not happy about the economic and political steps the Hungarian government has taken in the last six months. As a matter of fact, from next year on such "nationalization" of private funds will be forbidden throughout the EU. Hungary just managed to squeeze through. But Matolcsy must have gotten an earful in Brussels. The European Union demanded the utmost consideration of the people's rights. Hence Viktor Orbán's own recent proposal to make the returns that accumulated tax free. Originally, adding insult to injury, the proposed bill stipulated that returns that were paid out to the owners of the pension funds would be taxed. In the original proposal there were only a handful of offices in the whole country where people had to appear in person to express their desire to remain with the private funds. Otherwise, their accumulated savings would automatically be transferred to the big black hole of the Hungarian budget. Now, most likely as a result of pressure from Brussels, people will be able make their desire known in regional offices closer to home.

Second, although earlier there had been some vague talk about "reforms" sometime in the spring, Matolcsy earnestly promised extensive reforms by February. Apparently Matolcsy was told in Brussels that the European Union would accept the budget only if the 2.9% deficit was for real. That is without the extra revenues coming from the private pension funds and the extra taxes levied on banks and certain companies. Well, that will be a challenge, especially if the "structural reforms" are genuine. It is a known fact that reforms initially cost money. Moreover, according to economists the creators of the budget overestimated the revenues that will be received next year. Among other things they are counting on a fair amount of money being repatriated. No questions will be asked, and people who repatriate foreign accounts will have to pay only a low 16% tax.

Considering that people are actually thinking of moving their money abroad, it is very unlikely under the present circumstances that people will oblige. The Bajnai government tried to entice people to do the same thing, and its effort was spectacularly unsuccessful. If that was the case then, I'm certain that the Orbán government, after the state's coup against private property, will have even less of a chance of convincing people to bring their wealth back to the country. Meanwhile the deficit is growing and growing because less revenue is being received and the government is spending and spending. I am rather skeptical that the Hungarian government can fulfill the expectation of Brussels concerning an "honest budget" without billions being extracted from ordinary citizens, banks, and foreign companies. Then what will Brussels do?

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Member

Funny, when I heard about the nationalisation of the pension funds the first thing I though was that bank accounts will be next, after all this is the Latin American precedent.

Odin's Lost Eye
Guest

It is always a bad sign when the citizens of a country decide to ex-patriate their savings! A ‘flight of capital’ means that things are going very very wrong.
I would expect that if the Fidesz financial experts will ‘arrange’ a ‘compulsory sale’ to their citizens -at a premium over the ticket price- of special issue UNDATED Hungarian bonds (no payback period or guarantee of interest). These will be real ‘Junk bonds’ which only Hungarian Citizens can hold. It could be done under the ‘Mighty One’s ‘ (OV) “Co-operation proclamation”.
I suspect that all the top Fidesz wallahs will have already taken the necessary precautions
If they do that then the Europeans cannot really make too much of a fuss.
After that there could be the ‘calling in’ of all Gold and Silver just in case some crafty ‘criminals’ have traded their forints for bullion.

Kevin Moore
Guest

It is a common misconception that the money accumulated in the private pension funds are the individual people’s savings.
But it’s not.
That money is simply missing from the state pension fund while the state must pay 100% for the pensioners. This system was a horrible mess because it was steadily producing losses from year to year while private funds failed miserably to provide a yield that would account for the amount lost in repaying the huge debt taken to fill in the gap in the state pension systems.
In short, the state had an investment by letting 25% of the pension incomes go to the private funds, and at the same time, had a loan to pay back for it. The loan’s interest was a lot higher than what the investment yielded so it was economically a no-brainer to decide on cancelling the investment and use the money accumulated in it to pay back the loan.

Dave
Guest

To Kevin Moore
I believe that you are the one that is mistaken. Employers are paying 25% into the pension funds, and this money is money that was earned by the employees.
In western societies there are schemes where the employee is entirely responsible for their pension funds, there are countries where the state takes care of pensions, but all-in-all most countries are gearing into inducing their citizens to take increased responsibilty for their old age care.
The steps that the FIDESZ government is doing is exactly the opposite; instead of inducing more savings and self-care, they are taking away peoples’ savings just to fill in the hole they themselves made by their 16% uniform tax rate, which is not only unjust, but suicidal for the economy.
The practises this government has embarked on are most disgraceful acts for any democracy, especially for one that supposedly tries to look towards the west instead of the Balcans…

Kevin Moore
Guest

Dave: you are ignoring the damage this freak system has been causing to Hungary in the past 12 years.
You also ignore the fact that there are simply no such pension system in the western part of the EU, and for a reason. This freak system has been imposed on Hungary by the World Bank in 1997 but the system has failed miserably, even the World Bank acknowledged it years ago.
This was live experiment on an Eastern country of an unproven system and it failed.
Why don’t you rather encourage such experiments on rats?
You are mixing up the voluntary private pension funds and the obligatory private pension funds for some reason and you depict Hungary’s obligatory private funds as a viable solution for self-care.
But they’re not.
Please show me one country where a system works where people are forced by law to give their future pension money to private investors.

QWERTZ
Guest

Kevin Moore, Holland has such a pension system with a mixed state pension and obligatory private pension contributions. It works extremely well, it is probably the most secure pension system in the world.
It is ridiculous to say the Dutch are “giving their future pension system money to private investors”. It remains their money, it is the investors job to manage it for them. The better they do, the more money they make. This means they maximise return while minimising risk.
The largest Dutch pension fund, ABP, is one one of the best performers in the country when it comes to returns, outperforming many banks and private stockbroking firms. There are many worse places to put your money.

Joe Simon
Guest

All the more reason to have a European credit rating agency. It should be independent, it would not develop, sell and rate financial products at the same time. There is too much emphasis on the perceptions of greedy investors. Moody’s is actually contributing to a financial crisis making it worse. It has no legal liability, the Securities and Exchange Commission has no control over it. In the final analysis they claim to issue opinions only but these ‘opinions can have disastrous results. Even the IMF has no faith in the accuracy of these US credit rating agencies, their track record being not very impressive. So the situation in Hungary is made worse by Moody’s short sighted assessment.

Hank
Guest

QWERTZ: Hear, hear.
In fact, in Holland this system started decades ago and not only are most of these Dutch pension funds extremely reliable, thanks to the fact that they were allowed to stock capital for so long, they have become major investors, not only in the Netherlands but also in for example the US.
That’s what you get if you think long-term and resist the temptation to get your hands on this kind of money for some short-term gain.

Kevin Moore
Guest

QWERTZ: wrong.
“Although over 96% of Dutch workers are building up a pension within the second pillar, there is no obligation for employers to offer a second pillar pension to their employees.”
And don’t even try to compare the Dutch private funds with the Hungarian ones whose owners – with probably the sole exception of OTP – are nicely channelized into the Socialist party’s economic background.
You still ignore everything I’ve written about how this false system experiment in Hungary has caused huge losses for whith we (the taxpayers) must pay.
But in the end this is the only thing that matters.

QWERTZ
Guest

You should read a bit further, Kevin dear.
“This will mostly happen through a collective labour agreement (CAO), which is binding upon all employers and employees within a sector. Once a CAO has been concluded, the pensions legislation is applicable”
It is still binding on employers and individuals alike. You can’t as an individual opt out of the system, or as a company that has such a sectoral agreement.

Odin's Lost Eye
Guest
Kevin Moore The theft of large sums of money by any Government is an act of legalised criminality!. The Hungarian National Pension scheme is a ‘Ponzi Scheme’ which many Government run schemes are. In such schemes the current wage earners pay for the pensions of current pensioners. So long as the current wage earning workforce is larger and paying in contributions more than the current pensioners are receiving. All is well. Where the current wage earning workforce is smaller and paying less in contributions than the current pensioners are receiving. You have a problem. Actuarial calculations show that this will be the case in the future. There is a method which can overcome this problem. It is the ‘Funded Pension’ scheme. Here the current wage earning workforce contributions are paid to Assurance companies who use their knowledge to invest their clients’ payments and in doing so make a profit for their clients and themselves. O.K. so far? I believe that the Hungarian Funded Pension schemes are limited (as are many others) in what level of risk the Assurance companies can take. I have read in this blog that they were compelled to only trade in ‘Gilt Edged’ securities. That is… Read more »
Kevin Moore
Guest

Odin: you don’t need to explain me how the Hungarian pension system works. I know it perfectly well.
Yet you still ignored the main point: it is considerably more expensive to keep the system alive than what the system offers to pay back. Moreover, the EU is forcing Hungary to keep a ridiculous budget deficit which was a pie in the sky when agreed on with the previous government, yet the same EU is denying fair consideration.
This is a constraint course. If the EU forces very hard criteria on us but denies almost all available means to fulfill their criteria, then be it.
You don’t have an idea what ‘theft’ is. Theft is what constant loan interests mean to the population due to a forced private system that yields huge wins exclusively to its own runners.
On the scale of the national economy, this step by the government saves money and saves our own money. Hard step and very difficult to comprehend its real sense but this is the sad truth.

Kevin Moore
Guest

QWERTZ: and this is probably the only thing that is common in the Dutch and the Hungarian pension system. Yet it is a blue dahila and the system of the past 12 years has failed miserably. Something has to be done because we constantly lose huge amounts of money. Accept it.

Dave
Guest
Kevin Moore; it is utter rubbish that you are projecting. But let’s get away for a moment from the Orban Government’s financial mismanagement and concentrate on the new laws, regulations, etc… that this government embarked on since taking power in the past 6 months… This country is heading towards a totalitarian regime, very much like the one rules Venezuela today. Similarly many elements of their already executed others are planned and only a question matter of days to be implemented are very much like the Russian “democracy”. If one would take randomly only one out of those 60-80 rules, etc… and would plant them into Austria or Australia, there would be a fall of their government. Mr. Orban, who amassed a fortune and kept it under his wife’s name, whilst in power 8-12 years ago and since as the leader of the opposition, is interested only in one thing only; having the ultimate power in his hand. He is no less corrupt than the previous governments; in fact he is the very person who extended corruption into the political arena. He was the one that when caught red-handed discussing possible electoral fraud 4-5 years ago during local elections said “…… Read more »
Kevin Moore
Guest

Dave: it is utter rubbish what you are projecting.
That’s it.

GDF
Guest

Let’s have a vote: who is projecting rubbish?
I vote for Kevin Moore.

Kevin Moore
Guest

GDF: who cares? Dave didn’t even try to answer any of my comments, he only pooped in his pathologic delirium about how he mispercepts OV, based on his own condition.
I’m not getting into pointless discussions about one-sided symptoms of a few participants.

Rigó Jancsi
Guest
It is natural that the new system was generating losses. Most (all?) of the people who received pensions during the last years did get them from the state and not from the private companies, because they did only pay into the state system during their working years. On the other hand, the previous transfer from earners to pensioners didn’t work anymore like before, because part of that money wasn’t there anymore to be transferred, it was paid into the private funds. Of course, this means loss for the state. That’s obvious. If you talk about another kind of loss, then please bring in some examples, Kevin. It’s understandable that several governments urged the EU to change the deficit calculation and to take these extra expenses into consideration, because they are a long-term investments. That this was not accepted might not be fair, but is no reason to destroy the new system again. The Hungarian population is shrinking, and this has the same effect as the private pension funds: There is less money to be transferred between workers and pensioners. In the long run, the transfer system will not work anymore. Private pensions on an individual basis are the best solution.… Read more »
Sandor
Guest
Eva: “No questions will be asked, and people who repatriate foreign accounts will have to pay only a low 16% tax.” This is not a very attractive enticement at all. Those with the savings already paid taxes on income, before depositing their money in their investments. Now comes Orban and promises them an additional 16% tax, just as a reward for bringing their money home? Who would be so mad to fall for such enticements? To Kevin: you are completely misguided and biased, not to mention blindly wrong. Here is why. The private pension funds invest the depositor’s money, but the government’s pension plan doesn’t. The government is speculating that the future wage earner’s contributions will cover, alone, the payment obligations. Since, however, the economy depends on a diminishing work force and a sliding level of wages, (while further penalized by high inflation), the contributions will cover less and less of the payment obligations and more and more borrowing will be necessary to fill the gap. If the government would judiciously invest the available pool of money, (as many western governments do, because they don’t need to rely on those funds for their budget), there would be a certain yield… Read more »
Paul
Guest

I can’t follow most of the above (nor do I particularly want to!) but surely, as the government took the pensioner payments to reduce the deficit, that money has now effectively gone? Not only stolen, but lost.
If this isn’t the case, perhaps ‘Kevin’ or ‘Joe’ could explain why?
As for private pensions, I was forced to take mine early through redundancy and ill health, but, despite losing a large percentage because I took it early, I can still live comfortable on what’s left.
But there’s no way I would be able to live comfortably (or at all) on my government pension, and nor could I have taken it early if I’d needed to.
State pensions are a wonderful and necessary thing, but, as long as we live in this distored world where low taxes are seen as more important than decent support for the needy, anyone who wants to live comfortably in retirement will need a private pension as well.

T. Sanyi
Guest

I wonder why the time component is not present in the discussion. As I perceive it,the idea of the private pensions is that of an additional (!!!) system to secure future pensions (which will decrease in the state pay-as-you-go system due to a decrese in population). I don’t understand how you can judge on the success of this system, which has been designed for the future, after “just” 12 years.
I see the point that this worsens the situation of the state system having to finance the current pensions. But taking the money that has been put aside (and been invested)for the future pensions to fill the gaps now, leaves the problem of how to pay the pensions in future with a decreasing population. In my eyes the problem of the deficit in the state pension system has to be solved within the system.

Eva S. Balogh
Guest

T. Sanyi: “. But taking the money that has been put aside (and been invested)for the future pensions to fill the gaps now, leaves the problem of how to pay the pensions in future with a decreasing population.”
But Orbán doesn’t care about the future. He wants to keep his popularity by fulfilling promises he made: longer maternity leaves, earlier retirement age for the “ladies,” flat tax, more money for the police, and so on and so forth. After him the “flood.”

Paul
Guest

“To Kevin: you are completely misguided and biased, not to mention blindly wrong.”
It’s not often I laugh when reading HS, but this made me chuckle.

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