Measures taken by the Hungarian government so far to mitigate the impact of the coronavirus (COVID-19) epidemic are insufficient to deal with the unfolding economic and social crisis, according to an open letter signed by 15 economists.

The list includes liberal economists but also esteemed conservative thinkers such as former Hungarian National Bank (MNB) governor Akos Bod Peter and former economy minister Attila Chikan who served in the first Orban government between 1998 and 2002.

In the open letter, the economists said the government intends to cover the costs of the programme to a large extent from budget transfers and diverting money from businesses and local governments, which will provide little stimulus but will widen social disparities.

The government’s first response to the crisis included a debt repayment moratorium, waiving employer contributions and payroll taxes in the hardest-hit sectors and an eviction moratorium for small businesses.

Last week Prime Minister Viktor Orban unveiled a detailed economic recovery plan to the tune of HUF9.2 trillion (€26bn) or a fifth of the country’s estimated GDP.

The government will supply 70% of lost wages to workers, while employers will have to cover the remaining 30%. Engineers and researchers will have 40% of their salaries covered by the government. Additionally, HUF600bn will be used to bail out the tourism industry and HUF2 trillion in subsidised low-interest loans alongside HUF500bn in state guarantees will be extended to struggling businesses.

The government’s measures also included the gradual restoration of the 13th month pension in four phases from 2021 until 2024. The decision is politically-driven and is rather symbolic, as the last social-liberal government before Orban’s first supermajority exactly ten years ago was forced to scrap the entitlement due to the international economic crisis.

As for the funding of the measures, the government set up a HUF663bn fund to combat the epidemic in addition to HUF1.3 trillion for protecting and restarting the economy. Most of the money would come from a budgetary overhaul and taxes on banks and retail companies. The government would also divert HUF36bn from local governments.

The government is using its extraordinary powers, which eliminate democratic controls, to bleed out local governments, according to opposition mayors.

Economists agreed that slashing funding to local governments jeopardises their ability to fulfill key obligations in the social sphere at a time of crisis. They asked the government to beef up funding to local governments and NGOs carrying out social tasks.

Orban’s work-based society concept

The economic recovery programme does not address the problems of Hungarians who are losing their jobs in large numbers and the slogan of 'work-based society' used often by Orban is a particularly inappropriate approach in the current situation, they noted.

The Hungarian prime minister vehemently opposed the concept of universal basic income before the crisis and similarly he rejects the notion of handing out direct cash payments to citizens.  

The economists called for compensating lost income for those left without a job, or who had worked in the black economy and are not entitled to unemployment benefits with direct cash payments. Hungary’s jobless benefit is one of the lowest in Europe at HUF69,000 (€194) per month and lasts only three months.

They called for increasing flat family allowance pay-outs frozen since 2009. The conservative nationalist government’s family support measures have benefited mostly the middle-class and upper income earners with generous tax breaks.

Under the principle of solidarity the economists want to get Hungary's wealthiest involved in taking their share in crisis management. They called for a significant increase in budget spending and cuts in expenditures on non-essential investments. The surge in fiscal spending should not hinder effective government action against the economic fallout of the crisis, they argued.

Economists and analysts have criticised the government for sticking to keeping the deficit below 3% even as the EU allowed member states to loosen fiscal rules.

In a recent interview Orban rejected the approach of some countries to allow the budget deficit grow uncontrollably, saying that once the crisis was over, “they will find themselves being tossed about by creditors and speculators”. Hungary's strongman said he considered a 3% budget deficit a red line that must not be crossed.

Taxing the oligarchs

The signatories of the open letter say measures announced by the government “do not even symbolically consider it important to involve the rich in crisis management”, they wrote.

Hungarian opposition parties have drafted a bill on taxing oligarchs, saying that businessmen close to the government have to play their part in bearing the burden of the crisis caused by the epidemic. The tax bill is named after Lorinc Meszaros, the former gas fitter who became Hungary’s second dollar billionaire in a matter of years.

The business empire of the former mayor of Felcsut, Orban's home village, extends from such strategic sectors as agriculture and construction to banking, energy and tourism. Meszaros is a good friend of the prime minister and many consider him as Orban's proxy. 

Opposition parties would set a progressive tax on companies that have won more than HUF1bn in public procurement over the last ten years. They expect hundreds of billions of revenue from the tax, which will almost definitely will not get the required majority in parliament with ruling Fidesz holding a two-thirds majority.