Austerity program in Hungary: In dribs and drabs

Governments led by Viktor Orbán are far craftier than those of the flat-footed socialists and liberals. I guess in political terms one can say that the current government is much more successful when it comes to communication. So-called “political scientists” find the government’s communication strategy laudable. According these political analysts Ferenc Gyurcsány made an awful mistake when in the summer of 2006 he said in no uncertain terms that “austerity is coming, austerity is coming.” No wonder the socialist voters turned against him, his party, and his government. How much more clever it would have been to do what Viktor Orbán has done. First, he refused to say anything about his plans following the elections. Subsequently he kept repeating that “there is no way there will be any austerity.” Only socialists have an economic strategy that is based on austerity programs. He, by contrast, will introduce an economic revival without any “restrictions” (the Hungarian word for austerity). There will be “drastic” tax cuts that will benefit everybody.

These words resonated pretty well in Hungary, especially among Fidesz voters, but eventually it became crystal clear that there is no free lunch. It doesn’t matter how often the government and Orbán himself repeat that there will no austerity program but only “Action Program I and II” or the Kálmán Széll Program, these plans are part and parcel of an austerity program.

It might have taken a long time for Hungarians to wake up, but by now it is common knowledge that all these programs named after historical figures mean only one thing: fewer forints in the pocket. Moreover, by now the newspapers are calling the Kálmán Széll Plan “Orbán csomag,” the Orbán package. Just as in 2006 the introduction of the austerity program was called the Gyurcsány package. This development is rather amusing, considering how much Orbán wanted to avoid any association of his name with an austerity program which according to him doesn’t even exist.

The Orbán government parcels out bad news in bits and pieces. A little here and a little there. Perhaps the voters will not notice that something quite awful happened to their living standards. The Kálmán Széll Plan was decidedly short on details, either because they truly had no idea how they will manage to scrape together a savings of 902 billion forints in three years or because they didn’t want to dump the package on the population all at once.

The government’s communication strategy might be clever, but a lot of Hungarians aren’t buying it. Demonstration after demonstration, 50,000 here, another 50,000 there. The trade unions were out in force and in a fairly ugly mood, the Facebook people managed to draw a huge crowd, and at least 15,000 people stood yesterday for two and a half hours to listen to Ferenc Gyurcsány and others. What struck me as especially significant was the report that while the policemen, soldiers, custom officials, and firefighters were marching along Andrássy Street, people were waving from their windows and cheering them on. The last time I saw something like that was in the first few hours after the student demonstration that began on the afternoon of October 23, 1956.

Orbán is trying to tackle Hungary’s sovereign debt, which is admittedly high, but his goal to reduce it from 80% to 50% of GDP is far too ambitious and most likely unnecessary. One worries that Orbán’s preoccupation with the national debt might lead to internal upheaval. I’m not the only one who remembers Ceauşescu’s Romania. Perhaps it would be better to proceed a little more cautiously.

The policemen, soldiers, and firefighters were demonstrating because the government plans to put an end to their early retirement privileges. They will have to work until the age of 62. The government is also taking aim at all state employees, and there are many of them: their salaries will be frozen. Raising the price of drugs will affect at least three million people if not more, given the large number of senior citizens in Hungary. People losing their jobs will receive unemployment insurance benefits for only three months. And, as we know, the huge tax breaks benefited only a few at the top of the food chain. It looks like an austerity program to me.

The national debt will be reduced by 220 billion from the “crisis tax” on banks and by introducing a system of highway tolls based on mileage. Something I have been advocating for years. However, the introduction of this new toll system will take time and money.

And where else will the savings come from? Payments for sick workers will be reduced and eligibility for disability pensions will be stiffened. Here the government is planning to save about 15 billion forints. From the looks of it, it seems that in the next three years wages in the public sector will increase by only one percent. Considering that currently the inflation rate is over 4 percent, real wages would shrink at least 2-3 percent every year. Limiting unemployment benefits to three months means another 27 billion forint savings. The number of college students will also be reduced by 23,000. That is, if these people still want to go to college or university, because they will have to pay for it. And not just part of the cost of their education but the whole amount. The pensioners will not be happy either. Adjustments will only keep up with inflation; the earlier so-called Swiss indexing that adjusted pensions to the average rise in real wages is being scrapped.

As for the good news, unfortunately there are only promises that the government might not be able to fulfill. For example, in three years they are hoping to have 300,000 new jobs, half of which will be financed by the government. The government is lowering its sights. First we heard about 1 million new jobs in ten years, then 400,000 jobs by 2014, but now the goal is more modest. However, to me it is still too ambitious and most likely will not materialize.

Critics of the convergence plan claim that the predictions outlined in it are far too sanguine. Some of the savings mentioned in the plan are unrealistic. And there is the question of whether Brussels will accept the Orbán government’s “unorthodox” economic moves. For example, using the income the government received last year from banks and other economic sectors as part of the budget. If Brussels refuses to accept these unorthodox methods, the whole Orbán-Matolcsy edifice may crumble. In that case both the government and the country are in big trouble.

April 17, 2011