Viktor Orbán’s latest economic experimentation

At the end of September bne InelliNews, which reports on business news and provides data on emerging markets, published an article comparing Polish and Hungarian competitiveness based on the latest report of the Global Competitiveness Index. According to the Index, Estonia and the Czech Republic top the East-Central European chart. Hungary slumped to the bottom of the heap, the largest slide in the region.

A few days later an article appeared in Magyar Nemzet titled “Bukás az unortodox gazdaságpolitika” (The unorthodox economy policy is a failure). The Orbán government proudly points to the admirably low budget deficit, yet Hungary’s competitiveness has sunk to a historic low. In just one year, Hungary dropped from #63 to #69 while the Czech Republic, Poland, Bulgaria, and Romania all improved their standing. Among the 28 member states of the European Union only Greece, Cyprus, and Croatia are in a worse position than Hungary. The chart below encapsulates what has happened to Hungarian competitiveness of late in comparison to its neighbors.

versenykepesseg1

Competitiveness of select East-Central European countries

Why is Hungary doing so badly? In the opinion of the economists of Kopint-Tárki Konjunktúrakutató Intézet, an economic think tank that focuses on competitiveness, the reasons for Hungary’s poor performance are manifold, but among the most important are corruption, too high a tax burden, and the low educational attainment of the workforce. In addition, the volume of investment, foreign as well as domestic, has been falling for years. For example, in the second quarter of this year investment dropped by 20%. Moreover, the government isn’t promoting scientific research or the acquisition of advanced technologies. We may flesh out this list a bit by pointing to the problems of Hungarian education due to the Orbán government’s totally misguided ideas on the needs of the economy. Orbán in the last six or seven years envisioned a work-based economy, which means in essence a statewide factory where blue-collar workers toil day and night.

The first reaction of the ministry of national economy was that the research underlying the Global Competitiveness Index is based on subjective factors and therefore “the whole survey is distorted.” Behind closed doors, however, Economic Minister Mihály Varga and his team began to work on the problem. As usual, the “new course” was devised in great haste without researching the economic consequences of the projected steep rise in salaries in the next couple of years, the lowering of business taxes for large companies to 9%, and a 5% reduction in employers’ social security contributions.

Will these changes have any effect on the competitiveness of the economy or were the measures introduced for political reasons, with an eye to the national election coming in the spring of 2018?

The significant lowering of business taxes should, in theory, attract foreign investment and perhaps boost the competitiveness of larger companies. On the other hand, if corruption cannot be arrested and the unstable economic environment does not improve, foreign investors will not be willing to try their luck in Hungary.

The Hungarian economy is sluggish, hovering around a 2% yearly growth. Yet, according to plans, in 2017 there will be an increase of 15% in the minimum wage for unskilled workers and 25% for skilled workers. In 2018 further raises will take place: 8% for unskilled workers, 12% for skilled workers. People fear that such a steep rise in wages will kill many small and medium-size Hungarian businesses and at the same time will create inflationary pressures affecting all strata of Hungarian society, including pensioners and public workers.

Most commentators are convinced that Viktor Orbán’s decisions have little to do with his concern for the Hungarian economy. He is preparing the ground for the approaching election and, as usual, employers will have to pay for Fidesz’s popularity. What the plan will do to the economy doesn’t seem to concern Viktor Orbán. He now claims that the Hungarian economy is doing so well that these raises, which are long overdue, can easily be introduced.

The Hungarian population disagrees with the prime minister. According to an Ipsos survey, of 25 countries there are only three–Brazil, Mexico, and France–where more people think their country is in dreadfully bad shape. It seems that Hungarians aren’t listening carefully enough to Viktor Orbán, who a couple of days ago gave an interview to Világgazdaság. While talking about the large number of young and not so young people leaving Hungary and finding their fortunes in Great Britain, Germany, and northern European countries, he insisted that these emigrants aren’t leaving the country for economic reasons. Hungary is a better place than the western countries in many ways: here there are no migrants, no GMO-infected foods, public safety is way above average, and investments that promote healthful living are plentiful. “Our country will be one of the countries with the best quality of life.” These things make up for relatively low wages. Competitiveness is important, but “what counts is not only what happens in the workplace. Hungary is a country of culture (kultúrország), which offers great opportunities after working hours.”

It is also evident from this interview that Viktor Orbán discovered that “the education of skilled laborers, which we are currently promoting, within a few years will be useless.” Of course, we could have told him that six years ago when his government began to ruin the Hungarian educational system by restricting the number of academic high schools in favor of trade schools and when the government drastically decreased the number of university students. Now he is finally seeing the light, perhaps thanks to his great friend Günther Oettinger, European commissioner for digital economy and society: “there is a worldwide competition to see which country can find answers fastest to the new economic and societal challenges of the age of digitalization.” How far behind is Hungary? A couple of months ago 444.hu reported that a textbook on information science intended for eighth-grade students was originally published in 2003 and was reprinted in 2016. It is from this textbook that children are supposed to learn something about the digital world.

Under Viktor Orbán’s irrational and unstable leadership Hungary’s ship of state is being tossed about aimlessly. It is painful to watch the degradation of the country and the irresponsibility of its leadership.

November 26, 2016
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Andy
Guest

Painful indeed to watch.
Just imagine watching it crumble from the INSIDE!!!!

Observer
Guest

Add the gut wrenching desperation of seeing it coming while the dupes around dismiss all signs and news carrying their foolish grins of victors (eg. The latest “victory” over the U.S.).

Guest

Regarding Mr Oettinger an interesting article in the German magazine SPIEGEL that collects all the bad stuff about him:
http://www.spiegel.de/politik/deutschland/guenther-oettinger-eu-kommissar-wird-von-der-gratisflug-affaere-eingeholt-a-1122941.html
His extreme reactionary “Christianity”, racism, homophobia, friendship with Russia and Orbán etc may derail his EU career …

2016-i
Guest

The same matter was discussed in the Schwaebishes Tagblatt.

http://www.tagblatt.de/Nachrichten/Suche?search=oettinger

Noticed that Mangold is the hon. consul of Russia?

Viktor Fidel is quickly creating a Cuba in Europe.

webber
Guest

I don’t expect wage raises to have any effect whatsoever on inflation at the consumer level. While Hungary exports more than it imports in value, very few of the things Hungarians consume are produced in Hungary, and therefore prices of consumer goods in Hungary are at the immediate mercy of the Forint-Euro exchange rate, and less directly the price of oil, and natural gas, neither of which are set by Hungary. If the Forint weakens, inflation rises immediately.

I also do not expect the raises to have a direct effect on emigration, because they are too little. Wages have stagnated in Hungary for more than a decade, and over that time the Forint has fallen in value and prices have increased across the board. Western minimal wages are still so much higher than Hungarian wages will be that there will still be no incentive to stay in Hungary.

That said, in my view, a raise in wages is very welcome.

webber
Guest

The planned raise in wages will be carried out with only one goal in mind – winning the 2018 elections.
This has nothing to do with the economy, decency to suffering workers, or a desire to keep Hungarians from emigrating. The sole goal is to increase Fidesz’s popularity.

pappp
Guest
I agree that a very high amount of consumer goods are imported and if the HUF depreciates prices will go up (though these days 1% depreciation isn’t more than 1/3 % of inflation). But note that Orban always wanted inflation. It’s much easier to reach desired budget deficit levels (basically the only EU constraint on him) and revenue targets when there’s real inflation. The last 5 years internationally were deflationary (or close to that) however so Orban couldn’t generate inflation. This also means that – given their formula for increase – in real terms pensions increased by well over 10% over the last few year putting an enormous strain on the budget without much direct political benefit (though of course this means that pensioners are much more content and happy with their lives under Orban than without this appreciation). Bajnai took away their beloved 13th month pension and pensioners were livid. Orban essentially gave them back and while it’s not easy to assign this to Orban, most of them are pretty content. Interestingly given the Matolcsy tricks, the accounting of FX reserves whose profits were syphoned off into Matolcsy’s private funds imply that the HUF will be and must remain… Read more »
Guest

Pappp, where do you see these “huge reserves in the budget”?

Even now there is not enough money for schools, hospitals – you name it.

pappp
Guest

The budget deficit will be significantly below 3% this year (maybe 2% under the EU rules, perhaps even below 2%). The revenues for example will be some 750 billion forints higher this year than planned (Orban purposefully underplanned revenues in the budget).

This means that Orban can legally increase the deficit up to and even a bit over 3% and if the revenues will be again higher due to higher GDP and higher consumer spending (more loans for individuals) in 2017 than he can spend that too.

In real terms I guess Orban can easily spend 500 bn more next year alone and 750 more in 2018 (compared to 2016) and with some tricks like the central bank funds maybe more. This is a huge leverage especially as the last image of the Socialists (the Left) was that they were cutting welfare, pensions etc. for years before their fall in 2010 (mostly due to the 2008 crisis, but again voters are not economics professors).

petofi
Guest

@ pappp

Suggesting that government statistics can be trusted, and decisions made based on it…really gives you away as a master Russki Troll–

pappp
Guest

Petofi, you don’t understand the game. The EU knows that the numbers are cooked but has to pretend they are reliable. The state debt levels may be higher – on this there is a dispute with the EU but you can bet that Orban will let off the hook (just as with Paks2) – but with the budget deficit there hasn’t been any dispute. So, as long as the EU doesn’t complain Orban can start spending on votes.

Observer
Guest

Papp
First of all Orban is a complete economic ignoramus, he chooses options only in view of buying votes at the next election.

Second. The real budget definite is much higher. As noted above there are huge deficits in all of the main systems, eg right now the healthcare received the routine consolidation lump, but a anothe 20 bil. of 30 d overdue bills have to be paid. Against your 750 bil only the med staff first pay increase would gobble up 350 bil approx.
The EU funds are the life support that can carry it through 2018, all things normal.
Add 4 million living on or below the poverty line, the hundreds of thousands of unemployable half educated, all a burden on the budget.

Third. “People will soon be very happy” harvesting flying pigs perhaps? Have u seen a poll that found happy people here? Let us know.
Even the Fid voters are angry … at the EU, at the USA, at the world for foiling Orban’s plan to make them rich and happy. So please …

Guest

Observer, so true!
To underline your insights:
http://www.portfolio.hu/en/economy/hungary_is_on_the_wrong_track_according_to_huge_majority_survey.32149.html
In Britain and America 60% and 63% of respondents said their country was on the wrong track. In perpetually disgruntled France, that figure is a whopping 89%, followed by Mexico, Brazil and Hungary which came in fourth in this particular ranking.

The biggest concern in Hungary is health care – where 63% of respondents chose this topic as their biggest concern.

petofi
Guest

When you have a society of frauds, you’re hard pressed to reform. The doctors will never give up their ‘hala penz’ intimidations…

pappp
Guest
Orban is not an ignoramus about economics, that’s his image like he doesn’t use internet or that he always likes a good fatty stew. People vote for people who are like them and not for people who are different from them (haughty leftist smartasses or the East coast elites lecturing about economics are surely not like ‘us’). Orban has been in politics for decades and understands basic budgetary rules – even if he doesn’t accept them or tries different approaches. But putting a budget together is basic math and some creative accounting and he gets these. The point is that the EU rules will allow him to spend more, much more and he will spend more. Not very complicated. It’s also a fact that people easily forget about what happened 3 years ago if the trajectory has been good in the last 2 years (ie. 2016-2018). It’s not like Hungarians will be happy in 2018 like the Danish are, Hungarians will still remain a depressed bunch. But if your salary was increased by 25 percent or was increased by 10 percent twice in the last two years many people – despite the lies, the corruption etc. – will opt for… Read more »
Observer
Guest

Pappp
Orbán is a willy, quick step, shifty trickster, who has never learned anything in debt, but has a great fee

Observer
Guest

But has a great feel of the Hungarians.

What I was saying is that the money is not enough. If he increases the budget deficit or GGDebt there will be consequences immediately, it will be known.
On the other hand, you’re right, with a lot of propaganda many will believe that “we live better”. However with hard, focused and clever work the democratic side can open some dupes’ eyes to the fact that they live worse and still deteriorating.
Some waves in the financial markets can sink the rotter ship. So we shall keep the powder dry.

pappp
Guest

The connection isn’t so direct. Even Moody’s and SP upgraded Hungary and they should know better: with such capex investment numbers we have seen for years in Hungary it’s absolutely impossible to grow in a sustainable manner. Yet, they were “persuaded” (including fake statistics).

The markets are like a herd of sheep. Yes, at one point reality will catch up with Orban (his tricks) but if history is any guide he has ample time.

Smart organizations with supposedly impeccable integrity can be bought whether it’s the EU or Moody’s, it’s only a question of price and method. The markets may or may not sink this ship but that’s not something one can realistically count on.

Observer
Guest

Papp
Let’s not confuse investor rating with the real economy – the bond holders 1. have state guarantees and 2. Can leave relatively quickly through the secondary markets.

The real economy is in deep, deep trouble, the GGDebt has not gone down, while the MNB reserves have.
Any tightening on intl liquidity will surely rock the rickety ship, a storm will sink it a la 2008 or worse.
Nobody knows when, the brigands have been very lucky with the easement policies worldwide.

webber
Guest

Pappp
Official Hungarian inflation stats are nonsense (and I suspect you know that). They have the basket of goods by which they measure inflation, as do all other countries which measure inflation, but unlike those in most Western countries Orban’s number people change the goods in the basket whenever they like, to make inflation appear lower than it really is for public relations purposes.
The goods I buy regularly – the things in my basket – have gone up 5-6% in price in forints, every year, except those years when the forint has devalued heavily against the Euro, in which case the price has gone up more drastically.

pappp
Guest
Yes, but it’s also a question of perception and whether you blame the government or the “Jewish speculators” etc. for those price increases. Orban is cooking the books no question about that. In the case of pensioners the almost an extra month of a pension (via annual increases, when many items in their basket such as energy went down) is pretty real, though. They are the single most important political constituency and they cannot be made upset under any circumstances. And they are not upset. (I would even wager that they are the most content part of the Hungarian population which is also psychological I guess, I read somewhere that people in their 70s tend to report being the happiest). The point is Orban will spend a lot on whatever he will think will bring in the most votes, tax cuts or salary increases. The silver lining though is Tocqueville’s “revolution of rising expectations”: “it is not always by going from bad to worse that a society falls into a revolution. It happens most often that a people, which has supported without complaint, as if they were not felt, the most oppressive laws, violently throws them off as soon as… Read more »
Guest

I Think you give Fidesz and O too much credit – they don’t think so complicated and most of their ideas/measures are “on the spot” – things like Sunday closing, the tobacco monopoly or reducing the energy prices (instead of giving people cheap loans for insulation …) come to mind.

Someone has an idea – that looks good, let’s do it and enough Hungarians are so stupid and uninformed that they don’t see the idiocy of the proposal and the reality that it will hurt them!

And then they will start to complain again and whine because life is so unfair …

PS:
These are mainly my wife’s thoughts – she has a rather low opinion of her compatriots, having worked in the önkormányzat for decades …

webber
Guest

Pappp,
Where are you living? Where I am in Hungary, pensioners are upset – enormously. Their pensions have not been raised as much as inflation, by a long shot, and they are feeling it. ALL the pensioners I know are struggling now.
The raise in pension this year, of 0.9%, is nowhere near even the official inflation rate which is, as you agree, nonsense – inflation is much higher than the government admits.
http://www.blikk.hu/aktualis/penz/hiaba-emelik-a-nyugdijat-kevesebb-penz-marad-az-idosek-zsebeben/mzezz4r
So, where are these happy pensioners? I don’t see them anywhere.

Guest

Many of our old neighbours (Most of the younger people moved away from the village so the average age is over 60, at least they all look like that …) have kind of accepted or they are too brain damaged by malnutrition, eating too much fat, smoking and drinking strong pálinka to get what’s been going on …
They just exist from day to day …

pappp
Guest

OK, happiness is not the best word, they will never be really happy, we are in Hungary after all. But they are quite content and the pensioners I meet are (admittedly mostly in the Buda districts but also often in various parts of Western Hungary). Hungarians always like to complain so you have to discount that. I certainly don’t see or meet livid or upset pensioners. Maybe they suffer in silence and don’t want to talk about it. But I maintain that pensioners are probably the most content part of the population. In any case I would reiterate that I think there is possibility for a political change, I’m not defetist I just think there are challenges. People aren’t as upset as they were in 2010 because the economy is not in crisis. Election outcomes can be – at least in part – explained by economic circumstances which are now better than they were in 2010. This works for Orban.

bimbi
Guest

“Under Viktor Orbán’s irrational and unstable leadership Hungary’s ship of state is being tossed about aimlessly. It is painful to watch the degradation of the country and the irresponsibility of its leadership.”

Well said indeed!

If they want to see the state of the Hungarian economy, Orban Viktor and Varga Mihaly could do worse than pay a visit to the underground space at the Blaha Luiza ter any evening. Dirt, filth, misery, rough sleepers, BUT, “the Hungarian economy is doing better”.

The Orban Way: Propaganda, lies; lies and propaganda.

Bowen
Guest

No need to travel as far as Blaha Lujza Ter. The underpass at Kalvin Ter metro looks (and smells) like a refugee camp for homeless right now. As does Ferenciek Tere metro. I’ve been here for nearly 16 years, and this is the worst I remember it.

Guest

Not too much OT:

Yesterday we visited our neighbours and again I was reminded of how “poor” many people in the village are – and this in the vicinity of rich Hévíz:

Like many others in the village their house is not connected to the gas line that runs through – they use gas bottles for cooking and wood in their stove and one large “kandaló” for heating the house …

And from the smell you get ideas about what they are burning – not only wood …

Even my wife (who should be used to it, coming from Eastern Hungary …) often complains about the acrid smoke and the smell that you find on colder days and I don’t want to think about the poorer villages in the East.

Observer
Guest

After rushing in one wrong direction for six years the Genious of the Carpatian basin turns around 180 dog to a “new vision” .. It’s a Monty Python material, but not funny for those inside.

The very low corporate tax is catchy, but it is , however, combined with the IPA (turnover tax) which often is a much larger payout.

This latest economic knee jerk is just that, there’s no concept, no plans, but even if there were, how long would it be before another “great idea” swipes them away.
Orban is political gypsy horse trader, who doesn’t and doesn’t want to understand the concept of building a business. He is in for the quick rip off.

Investors beware – you may do business as long as the little dictator som wishes, loose his favor and you loose it all.
But if you do too good you may just as well be made an offer for your business you can’t refuse.

Melanie Zuben
Guest
Every time I see Victor Orban (online media) he always reminds me of the famous poem by Maya Angelou: Still I Rise You may write me down in history With your bitter, twisted lies, You may tread me in the very dirt But still, like dust, I’ll rise. Does my sassiness upset you? Why are you beset with gloom? ‘Cause I walk like I’ve got oil wells Pumping in my living room. Just like moons and like suns, With the certainty of tides, Just like hopes springing high, Still I’ll rise. Did you want to see me broken? Bowed head and lowered eyes? Shoulders falling down like teardrops. Weakened by my soulful cries. Does my haughtiness offend you? Don’t you take it awful hard ‘Cause I laugh like I’ve got gold mines Diggin’ in my own back yard. You may shoot me with your words, You may cut me with your eyes, You may kill me with your hatefulness, But still, like air, I’ll rise. Does my sexiness upset you? Does it come as a surprise That I dance like I’ve got diamonds At the meeting of my thighs? Out of the huts of history’s shame I rise Up from… Read more »
Guest

I am the dream and the hope of the slave.
That’s really funny regarding O – you made my day!

Melanie Zuben
Guest

. . . “You may shoot me with your words,
You may cut me with your eyes,
You may kill me with your hatefulness,
But still, like air, I’ll rise”. . .

Guest

Congratulations!
You’re really like a balloon of hot air!

PS:
How much must Fidesz hate their fellow Hungarians to treat them so badly, exploiting them, letting them die in a rotten health system etc …

You know that Hungarian life expectancy is one of the lowest in Europe?
You’re lucky to live far, far away …

Guest

“Every time I see Victor Orban (online media) he always reminds me of the famous poem by Maya Angelou”

You have misunderstood the poem. Maya Angelou was a civil rights activist.

Guest

I looked up this fantastic black woman on wiki – and was really impressed, so in a way I have to thank latefor for this.
https://en.wikipedia.org/wiki/Maya_Angelou
But to apply her poem to O is a kind of travesty and shows how disconnected from Hungarian reality (crazy comes to mind) latefor is and probably always has been!

webber
Guest

Latefor/Melanie is one of those great Hungarian “patriots”‘ who wouldn’t live in Hungary if you paid her to.

Guest

And I’m wondering whether melanie really understood that poem …
Does my sexiness upset you? Does it come as a surprise That I dance like I’ve got diamonds At the meeting of my thighs?
Maya Angelou was a sex worker to keep from dying of hunger so there are lots of parallels to today’s Hungary and its poor people – Budapest is the center of the European pron industry …
And is this another strange coincidence?
Of course melanie also offered her “wares” here – very aggressively …

Melanie Zuben
Guest

wolfie & Jane P,
What do you take me for? Do you honestly believe that I would post a poem to a pack of wolves if I wasn’t familiar with the poet and its content? Up on your high horsie again?

. . . Did you want to see me broken?
Bowed head and lowered eyes?
Shoulders falling down like teardrops.
Weakened by my soulful cries.

Does my haughtiness offend you?
Don’t you take it awful hard
‘Cause I laugh like I’ve got gold mines
Diggin’ in my own back yard.

You may shoot me with your words,
You may cut me with your eyes . . .

ferenc
Guest

Never heard of before, and also very impressed by Maya Angelou. Hope people will keep ‘singing’ her ‘songs’.

ferenc
Guest

Seems some misunderstanding is going on here caused by “he (OV) always reminds me of the famous poem”.
Can be understood more ways: as the poem to be applicable on OV, or OV causing a reaction to somebody (Melanie Zuben) and making that somebody reminding the poem.
I think to understand which way was meant, but don’t want to speak in Melanie’s name…….

webber
Guest

Melanie Zuben has made it amply clear here in the past that she loves OV.

webber
Guest

P.S. Ms. Zuben lives in Australia. She wouldn’t dream of moving to Hungary.

ferenc
Guest

Yeah, a search made that clear to me.
So Melanie your air will disappear into the OV-acuum.
And Maya surely got something from Obama:comment image

Melanie Zuben
Guest

Oh, am I getting psychoanalyzed now? To be perfectly honest with you, I was expecting your regular attacks from Charlie. What happened to him? Did the Russians take him out or something? Perhaps not, they must be busy with more important things. : – )

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