Here we continue with the critical look at the various doubtful elements and figures of the Hungarian economy in the last several years.

5. The budget deficit reduction to 3% has been a top goal of the Orbán government, because EU cohesion funds disbursements depended on it and these funds represented 95% of all public investments, which in turn financed the projects invariably awarded to supporters and clients.

And reduced it was, all economists agree, by increased taxation, mainly by way of special/ additional taxes on multinationals like banks, telecommunication and retail companies. “At the same time the tax burden on some groups of low-income earners remains among the highest in the EU.” Country Report. The reversed Robin Hood principle practiced by the Orbán regime is an interesting subject, but outside our scope here.

Nominally the budget deficit went from the very high average 7.1% GDP of the 2003-2007 period before the crisis (high, even if considered against the avr. growth of 3.5% for the same period), spiking to whopping 9.3% in 2006, then stabilizing at 5.1% in 2007 and gradually easing to 2.6% in 2015.

“The budget deficit has been contained, keeping the public debt ratio on a gradually declining path..” says the Country Report.

But again, what is the real deficit considering the many doubtful elements in the equation?

6. Various figures indicate that the main budget items of health and education carry massive debts (from HUF 200 to 450 billion) hidden at lower levels or by the lack or the delay of consolidated data.

While the unpaid bills are easy to add up, it is much more difficult to quantify the systematically decreased or deferred capital expenditure or the reduced workers income in these systems.

smoke and mirrorThe Orbán regime boasts with its “unprecedented investment in medical facilities”, but in fact the upward trend, e.g. an increase of +6.9% in the period 2009-2011, was reversed in 2011-13 downward to reduction by -3.4%. Now the government spends just over 4% of GDP on health services, one of the five lowest in the OECD 34 countries where the average is 7% of GDP.

Both systems have been starved to the point of collapse, which has started to show, e.g. the meek teachers are protesting and preparing to strike, medical staff had been departing in droves for years leaving many hospitals without the legally required minimal staff.

Another way to keep the deficit low is the government’s almost complete withdrawal from infrastructure development: 95% of the finance in all government projects comes from the EU cohesion funds.

Finally, there is notable factor not often discussed – after the appropriation of the PPF monies, the Orban regime stopped contributing to such funds, this way “saving” approx. HUF 350 billion per year according to Mária Z. Pecsnik in her interview Klub Radio March 7th, 2015. (Notably, the government contribution in the crisis year 2009 was HUF 354 billion.)

This item alone represents 2.4% of the government budget or 1.2% or GDP, so in the old set up the budget deficit would have been 3.9% GDP and probably more than 5% after adding some of the other items above. One way or the other the prospects are grim.

7. Employment is another area of government boasting and of serious doubts caused by inconsistent or contradicting data.

Orbán personally vowed to create 1 million new jobs and full employment (!). Silly as these were, in the absence of substantial progress and, above all, to cover for this nonsense the administration resorted to the habitual chicanery. It offers a mishmash of probably false claims, which are hard to reconcile, e.g. how does one create 200 000 new jobs in a year with stagnant 16% of GDP investment, or where is the increase of private spending which would result from such hike in employment?

To improve the figures the government decided to include the Hungarians working/living as tax residents abroad in the domestic employment statistics. I don’t even want to elaborate on this point.

The government claimed to have created 172 000 new jobs in 2014 alone, an increase of 14%.
This would have required HUF 750-770 billion new investments and KSZH (Central Statistical Office) shows that HUF 5 216 billion were invested altogether in 2014 Q4, which is HUF 730 billion or 14% more than in 2013. Seems an almost perfect fit.

However, with HUF 32 180 billion GDP for 2014 the above investment of 5 216 billion is still only 16.2% of GDP. Such a low rate covers just the amortization requirements and leaves nothing for new capacities. Don’t ask me how they reconcile this contradiction.

The reality is closer to an estimate by Mr. Romhanyi, head of the Institute for Responsible Budget, of only 3 000 real new jobs and to the figures of the EU report Employment and Social Developments in Europe 2015 – Statistical Annex according to which the total employment was 3.9 mil in 2005 vs 4.1 mil. in 2014 or 0.5% p.a. increase over the period, a far cry from the regime’s claims.

The unemployment figures in the EU’s Statistical Annex don’t look better even as embellished to some extent by the Hungarian KSZH row data: 302 000 out of work in 2005 and 343 000 in 2014. Please note that the standard pitiful benefits paid for three months dampen the number of applications too.

After the worst figure in a decade – 441k appeared in 2013, the government quickly applied a magic trick and reduced the unemployment by 22% in a year, believed it or not.

8. The Orban chicanery continues with another dark area that is the ever changing Public Works Scheme, which was introduced in 2011. In effect it replaced the unemployment and some social benefits, where many unemployed were given often meaningless menial work to improve the statistics. The figures were inflated by various tricks like counting a person working 4 or 6 h days for longer than three months as fully employed for the whole year.

A pretty alarming trend, according to the Country Report, is the fact that:

“The … cost of the scheme has quadrupled over the last four years, to 0.8 % of GDP, ..and is expected to double again [by] 2018” diverting resources away from real improvements, training and other assistance to facilitate participation in the labour market, but “does not seem to sufficiently improve the employability of the participants.” – or not at all, since I remember something like 4% of participants turning properly employed. To emphasize the inefficiency of the scheme one has to consider that the monthly income of those involved is around HUF 50-75 000 or € 160-225 per month, below the legal minimum net wage of €225.

9. The political risk may sound as an abstract issue to many, but it’s a center point of reference which influences all aspects of the economy. The issues below all reflect on the quality of decisions, legislation and executive action, as well as on the predictability of policies, all issues correlating with the well-being of the economy.

The budget, an important tool of government, is being prepared and submitted ever earlier in the year, e.g. April/May, for the Orbán regime considers this a prestige point. Working with 10 month old data instead of two months old obviously increases the risks in planning.

At the same time budgets are being modified at the drop of a hat, up to seven times.

The process of government decision making is always obscure, often a black box, e.g. no records are kept of the cabinet meetings, no consultations are conducted, even when required by law, and consensus seeking is alien concept for the Orbán regime. The process has been highly centralized and subjected to authority rather than expertise. The public service has been flooded with political appointees with low, if any, expertise and experience resulting in dramatic deterioration of both legislation and government.

There is no point in discussing the appalling process of legislation, because the current Hungarian parliament has become a rubber stamp body of no resemblance to proper legislation or control.

The unpredictable and shifting policies and the authoritative interference of the Orbán regime into the free market processes have been decried by all analysts, e.g. mentioned as an crucial issue in the Moody’s repot, as detrimental to investment and growth.

The so called “opening to the East” proved to be an costly dud and in tandem with the antagonistic attitude toward multi nationals, foreign capital and the Western free economies probably meant many missed opportunities.

The lack of innovation and development policies, the withdrawal of funds and the sinking quality of all levels of education reduce the prospects of economic growth and development, while the exodus of the most skilled and enterprising youth guarantees its deterioration in the medium term.

Corruption has become endemic to the point of significantly affecting the economy in financial terms. It is also a distorting factor which skews policies and specific decision in favor of various private interests often contrary to the public policies and interest. The quality of services provided under corrupt contracts is often sub-standard.

Finally the economic risk should be mentioned, for if the Hungarian economy, even with the its embellished indicators, is not performing very well in the period of good recovery and satisfactory growth in the OECD world, what awaits the country if things turn sour worldwide.

The above-mentioned important elements and indicators give raise to grave doubts regarding the official Hungarian data and regarding the real status of the economy. The problem with all hardened liars is that at the end even they don’t know how much truth is there and how much is smoke and mirrors.

March 24, 2016


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March 24, 2016 7:02 pm

Observer both parts are very good. If there will be a part 3, may be (just a suggestion) some attention to long term obligations (Paks comes to mind) as well as the long term impact of some decisions by this government, such as the Széchenyi Plan.

March 25, 2016 5:42 am
@Ron Tnx. From economic point of view there is little use of following the Széchenyi Plan, Város Liget or like, these change all the time and can be stopped or terminated at any sub-stage, i.e. the financial/economic implications can be contained. (They are rich source of examples of political power abuse, dilettantism and corruption.) Paks is exactly the opposite – it’s a huge single project where everything is lost if the final stamp on the operational license is denied. I think this would be a Mohács for the Hungarian budget which will also knock down the economy for decades. The whole Park project has been hushed from the beginning, classified thereafter, so we know very little. Why the secrecy? You’ve guessed right – the deal is not so great to boast with, and there are no good supporting studies (if so, making the process illegal). (Off the top of my head) The estimated costs were reported like HUF 3 600 + 1200 for eventually upgrading the backbone grid to carry the energy produced of both old and new blocks for 6-8 years. Since there hasn’t been a nuclear power plant completed in Europe within budget, for the Hungarian case of… Read more »
March 25, 2016 5:44 am

Totally OT – but interesting, especially for our Australian contributors here:

Our young ones came for Easter and we talked about how so many of their friends left Hungary (for good …) because they could not make it here in backwards oriented Fidesztan.

The craziest example they brought up is a friend who wanted to be an artist and then went to Australia where he found work as a carpenter and then in his hobby – and now look at that:


A young Hungarian working with the Aborigines and making didgeridoos …
Traditional didgeridoos from Arnhem Land, and quality termite hollowed didgeridoos made by Queensland based maker Janos Kerekes.

March 25, 2016 5:46 am

Re long term obligations.
I don’t think the readers here will be thrilled by analyses of the government bonds positions in the light of the world credit conditions. (And, huuush, I don’t know or well understand the area)

March 25, 2016 7:41 am

Re Long term Obligations
As you mentioned in your articles and commentator ambalint mentioned below (more or less). Who controls the money has the power according to Fidesz as well as other parties.

So far the EU withheld the funds for a limited period (thrice) in order to force this government to comply with EU’s rules, and this government did this immediately, although their were grinding their teeth and made some story, therefore, in their opinion saving face.

The problem the opposition have is that they do not control (partly) the money, and therefore, they are not important to Fidesz (you have nothing you are nothing).

However, on the long term the current policy of the ECB (extra billions EUR bills printed) will eventually costs the EU dearly. As Observer I am not an expert in this field, but common sense says this can not go on forever, and if it does than Hungary has no back up. And I hope that the opposition will not fall in this potential trap.

March 25, 2016 7:18 am
It would appear that the bottom line regarding all of the facts enumerated in the two parts of Observer’s study is that the EU cohesion funds are actually the linchpin that keeps the Hungarian economy afloat, preventing it from collapsing into a hopeless heap. That means that Brussels has enormous leverage over Orbán & Co. which however the EU refuses to exercise or even contemplate exercising in any kind of a serious manner. The only thing I can conclude is that totally contrary to its founding principles, the EU has no problems whatsoever with Orbán’s ‘illiberal democracy’ and its systemic and systematic corruption, abuse of legislative process, abolition of constitutional checks and balances, mockery of the rule of law, transparent authoritarianism and autocracy, arbitrary dictatorship of a parliamentary majority, and the lying, cheating, fraud and dissembling raised to a high art by Budapest. Obviously Orbán & Co. are perfectly aware of this and treat it with the contempt it deserves, while freely and frequently biting the hand that feeds them. What Orbán & Co. do not seem to be aware of however, is that ultimately a national economy runs on certain minimally adequate levels of trust, honesty, transparency and credit,… Read more »
March 25, 2016 11:15 am

“Brussels has enormous leverage over Orbán & Co. which however the EU refuses to exercise…”

Makes little sense, doesn’t it….unless one hazards the point of view that Orban is aiming for the collapse of Hungary…and the EU knows this!

March 25, 2016 8:01 am

The most fundamental factors influencing the prosperity or otherwise of a nation is a mentality embracing enterprise and risk taking, the wellsprings of energy, creativity and inventiveness, its relevant skills and competencies required for success in the international marketplace, and a regulatory, administrative and banking framework favouring start-ups, foreign and local investment, and in general outward looking and open minded people who prefer to stand on their own two feet.

If this was the way Hungary operated, a quarter of a century after the regime change it would, and most certainly should, by now be fast catching up with neighbouring Austria.

But none of this exists in Hungary, where the leadership fiddles the books to make the economy seem to be growing while stealing and looting from it as much as they can, the real economy is a Balkan-style mess, and the population at large hooked on corruption, thievery, lying, backstabbing and looting from both the state and from one another.

Unfortunately there is not much that can be done with a nation wallowing like that in a stinking economic cesspool of its own making. Because ‘aki hülye, az hülye, nem lehet rajta segíteni’ (such a cretin is beyond all help).

March 25, 2016 8:16 am

And may I add to the first para of the above post another absolutely crucial requirement for economic success: a society where not only is there no fear or contempt of failure, but where failure is actually embraced as a vital learning experience on the way to success.

Needless to say, the exact opposite of this is true in benighted Hungary.

March 25, 2016 8:29 am

You know as I read Observer’s analysis we cannot escape the fact that with all the analysts crunching data they seem to be more math magicians than purveyors of reliable data which others depend on to make their own assessments and projections.

Apparently none who ‘rig the nums’ have had the wherewithal (as of yet) of stopping the lying with statistics. Payback I’m afraid as others have noted will be a b****. Sorry to say. Lying and cheating and greedily groveling for sacks and more sacks of forints or whatever has thrown trust out the window in that forlorn state. How could anything worth while grow under those circumstances is beyond understanding. Hungary will be paying eventually for seemingly having some celebrate Karacsony 365 days of the year. Why wait for Dec 25th???

March 25, 2016 8:49 am

The transport workers union has called off its national strike set to start on March 28. The workers were offered a 3% raise by the government and it is now being considered by the union. See http://nol.hu/belfold/lefujtak-a-volan-sztrajkot-1607943

This is a real blow to making the March 30 education action more generalized because the transport workers had indicated public support for the education action since they were set to be on strike at the same time as the action. The reality is Orban and Fidesz can still make a deal when faced with a major disruption of society and Hungary’s extremely weak unions are really not interested in direct confrontation with Orban if a compromise can be reached.

March 25, 2016 11:17 am

transport workers’ deal

Standard Orban machination: give with one hand to deprive the opposition coalescence.


March 25, 2016 1:45 pm
Nepszava has an interesting article today on international labor solidarity with the education action called for March 30. Towards the end of the article we learn that Galló indicates that of the original 25 demands made by the joint union strike committee after extensive discussions with of representatives of the Ministry of Human Resources (Emmi) they were close to agreement on 18 of those demands. The President of the Hungarian Trade Union Confederation, László Kordás, in the article also indicated that the Confederation continued to support the Tanitanek movement for education reform but there was no indication in the article that the Confederation was asking its members to withhold their labor for one hour on March 30 and appear in mass in front of schools. The article indicated that as of today fewer than 100 schools nationally had publicly agreed to participate in the one hour action on March 30, Hungary has a total of about 1.3 million pupils enrolled in primary and secondary education not including Church related schools. The schools committed to the action is currently a very tiny fraction of the primary and secondary schools in Hungary at least according to this article. Hopefully if this action… Read more »
March 25, 2016 11:50 am
Guys Some notes on the comments: Indeed EU cohesion funds produce whatever growth there is, but there is no collapse even without them just further sinking, but the bottom (e.g. North Korea) is a long way down. Sad that Hungary was at the top in EEurope, after Slovenia, just ahead of the Czechoslovakia and now leads Romania and Bulgaria. While Kadar managed to keep it the “merriest barrack”, Orban made it the saddest. On keeping dictators afloat by Western aid, see the great “Dictator’s Handbook”; warning: the PCorrectness inclined may be shocked a bit. The “analysts crunching data” are bound by certain methods and by the use of official Hungarian data, but they still see many things: Moody’s and S&P did not change the rating, some Eurostat figures vary from Hungarian ones, investment rate is very poor and stagnant, the quoted report list many risks. They may be too polite … The Greeks did celebrating many days in a year, definitely not Hungary, where large segments have been sinking into poverty (but this was not my subject). Orban and cronies, however, are having Mikulás (St. Nicholas bearing gifts) 365 days a year. @ambalint hit a crucial point: “most fundamental factors… Read more »
March 25, 2016 4:12 pm
@Observer Today 11:50 am I think that in the developed world we are in the midst of a massive economic paradigm change at an ever accelerating exponential rate in which: 1. The globalized communication and transportation revolution enables easy and massive relocation of labour-intensive manufacturing and service work to underdeveloped regions of the world where labour is relatively inexpensive. 2. Traditional and conventional forms of work are being made massively and widely redundant in the developed world through the disintermediation processes of the automation and robotization revolutions. 3. The exigencies of having to urgently decarbonize the world economy are shaking the very foundations of market economics as we knew it over the past couple of centuries. 4. The enormous overhang of world debt secured by a vast Ponzi scheme of hierarchies of debt that are literally too complex and vast in their magnitude to be in any way comprehensible by mortals, rather than being secured by real assets and/or solidly productive assets, must somehow be dramatically reduced before more major economic crises and disasters blow up in our collective faces to catastrophically decimate the wealth of nations. It is as yet unknown and unknowable what forms of mass employment, if… Read more »
March 26, 2016 4:56 pm

I agree work as we have known it is being eliminated. I expect fully automated driverless long haul trucking to be a reality within 10 years. Uber is talking 5 years to going driverless in cities around the globe. There is already a body called the International Committee for Robot Arms Control and both the USA and Russia are actively developing fighting robots to replace human soliders. For those without higher skills and a university education afuture is difficult to foresee.

March 27, 2016 3:12 am

It might well be that production and transport (and other services) will be done mainly by “robots” in the future and then the rich will show off their position by having human servants/serfs/slaves like in the good old times of the pharaos, emperors, sultans …

March 27, 2016 4:35 am
@wolfi7777 Today 3:12 am I very much doubt that. My bet is that robots will take over only those areas of work that involve programmable capabilities. In other words, areas of drudgery where humans are readily replacable by turbocharged mechanization or automation on steroids. That leaves a huge scope for developing masses of work opportunities delivering products and services that require unprogrammable capabilities producing outputs and outcomes that are surprising and entirely unexpected, such as creative work or work crucially dependent on understanding and utilizing complex context. Robots with unprogrammable capabilities, i.e. beyond the point of ‘singularity,’ belong in the realm of science fiction, and I expect that the boosterists of ‘singularity’ would still be frightening the horses a millenium hence with visions of such robots malevolently wiping out biological humanity. As yet we cannot even conceive of the multitudes of work opportunities that are likely to emerge in the future, where unprogrammable capabilities would be the key, but we can be certain that a world of work where unprogrammable capabilities dominate would enormously enrich the lives of human beings, whether they be producers or consumers of its outputs and outcomes. Given that most kinds of work in human history… Read more »
March 27, 2016 4:54 am

Mike, I hope you’re right!
But this type of work that you describe presupposes qualities from the workers which heave to be taught, learned and experienced and from our past we know that that’s not easy – especially if the leaders are not willing.
Just think about Fidesz’s stance on education, especially higher education, the humanities and the arts!
And in other countries of course there are millions of people too who wouldn’t know what to do in the environment that you describe.

March 27, 2016 6:49 am
wolfi7777 Today 4:54 am I agree that currently it is difficult to even imagine the kind of future that is almost upon us, and that does not portend well in many among even the most developed countries of the world, of which Hungary is not one. Transformational changes enabling successful adaptation by ordinary people to the challenges of this future – and especially knowing what changes to implement and the readiness to implement those changes – are particularly essential in both country-specific education systems and in the social attitudes that form the contexts in which those education systems operate, but above all in the value systems that underlie and drive both those education systems and social attitudes. However, without timely, far sighted and visionary political and social leadership nothing is more certain that the inevitable and unavoidable transformative changes would bring on extended periods of great pain and suffering for ordinary people until such time that a new equilibrium is reached. Just like it has been the case at the dawn of the age of industrialization or at the subsequent dawn of the industrialization of agriculture. Hungarians have a choice today: either to take this challenge seriously and come out… Read more »
March 27, 2016 7:06 am

And by the way, I think that the main change in the country-specific education systems would need to be a dramatic shift to teaching how to learn, i.e. how to teach oneself, so as to prepare students for life-long learning, flexible adaptability to new situations, independent mindedness, taking responsibility for themselves as well as others, a high affinity for enterprise and risk taking, with numerous carrier paths to be expected in the course a lifetime.

March 27, 2016 7:27 am

The end of the day the future that is almost upon us will be a world not that different from ours. The nimble and able will thrive, the slow and sluggish will not.

The ultimate aim of the transformative changes in education and social attitudes would have to be the absolute minimization of the numbers of the slow and sluggish, and the introduction of systematic and adequate social welfare support for those relatively few remaining individuals unable to adapt and speed up, probably by means of some species of negative taxation.

March 27, 2016 10:14 am

Mike, I hope you’re right – though the experience of the Roma shows how difficult it is for Hungarian society especially to adapt to changing times.

March 27, 2016 1:34 pm

Today 10:14 am

That is very true, and I would never venture to assert the contrary.

It is obvious that Hungarians and other East Europeans will inevitably experience extreme difficulties in their attempts to adjust to the realities of the brave new world that is about to descend on us.

And whether in the end they are going succeed at all – or not – is very much an open question in the lap of the gods.

March 27, 2016 1:49 pm

And now let’s start a new thread – this getting akward …

March 26, 2016 8:37 am

Kleptocratic leaders and the weakening of institutions

What I’ve come to realize is that kleptocratic states, such as Russia’s and Hungary’s, carry the seed of their own imminent destruction. The western powers and their think tanks know well that kleptocracy is dependent on the leader and therefore limited in longevity; as well as dangerously weakening the fabric of institutional development. In the long run,they are doomed to wither and die, no less than the leaves in Fall.

Such the rationale of the EU, I presume, in letting Putin and Orban be…

March 26, 2016 11:31 am

Today 8:37 am

This may well be a significant consideration.

March 26, 2016 2:23 pm

Orban has realized that his only chance to stay in power and avoid justice meeted out by angry Hungarians is to quit the EU and seek protection under Putin’s wings. The EU has read his thoughts and will not let him slip away.

March 27, 2016 8:36 am

@Jean P
March 26, 2016 2:23 pm

Too bad for the EU if that were the case, since letting go of Hungary and anything East or South of Hungary would clearly be a net gain, rather than loss for the EU.

But anyway, I think it would be mere wishful thinking and far too ambitious to impute to the EU any intentionaility in this matter.

I would rather attribute EU attitudes to simple bureaucratic inertia and an enormous amount of indifference as to what goes on within Hungary.

March 27, 2016 8:42 am

And in any case, it is obviously the personal and mafia income derived from EU cohesion funds that keeps Orbán in the EU, rather than any magical reading of his thoughts by the EU and then taking steps to not let him slip away. And the necessity of EU cohesion funds for cooking the books of the Hungarian national accounts.

What happens after the EU cohesion funds dry up, that of course is another matter altogether.

March 27, 2016 11:16 am

Before posting my above comment I erased the final sentence: “He is chained by the subsidies”. I should have left it there.