Hungarians argue over whether worse off or better off than in 2010

By bne IntelliNews March 25, 2014

Kester Eddy in Budapest -

Hungary is "standing on its own two feet" and it has achieved this "without the help of anyone else" - so Viktor Orban, Hungary's fiery prime minister, declared March 19 in a self-congratulatory address to the Hungarian chamber of commerce.

"The economy is growing, the debt's been cut, energy is cheaper, credit is cheaper, inflation is lower and exports are expanding: nobody can contest these facts as far as I'm concerned," he told the assembled captains of Hungarian industry.

The former anti-communist student dissident has been touring the country for the past month in a frenzy of ribbon cutting, foundation-stone laying and touting the successes of his Fidesz government, in a campaign to win another four years in power when the nation goes to the polls on April 6.

His summary of the party's programme? "We will continue," he said, although he outlined a 10-point economic policy plan for good measure. This includes targeting an increase in domestic sources for government debt, a commitment to "re-industrialisation", at least 50% of the banking sector to be in Hungarian hands and further reduction of taxes on labour.

At most events involving the prime minister, no questions are allowed: Orban avoids situations where he is liable to be robustly challenged - hence his refusal to take part in any pre-election television debate with Attila Mesterhazy, his main challenger from the left-liberal opposition alliance.

Yet the statistics that Orban alluded to largely underpin his claims: the economy grew by 2.7% in the last quarter of 2013 (giving growth for 2013 of 1.1%), headline inflation is close to zero, credit - especially if obtained from the central bank's "Funding for Growth" scheme - is cheaper, and while independent experts question whether the budget deficit target can be met in the wake of a flurry of pay rises for state employees, they agree it should not be significantly above 3% of GDP. The current account, boosted by manufacturing, is posting record surpluses, and unemployment stands at a little over 9%.

But contrary to the prime minister's assertion, opposition and independent critics queue up to contest "the facts". The problem, they argue, is that government policies have all too often been aimed at short-term gain - such as the mandatory utility price cuts - or, in the case of taxes, at specific, mainly foreign-owned sectors, which has both undermined business confidence and resulted in cost increases passed on to customers, as in the banking sector.

Bernadett Szel is an economist and MP for the small green LMP party, which has refused to join the main opposition alliance. Nonetheless, she speaks for many regarding what she sees as unsustainable, populist government policies. "The rezsicsokkentes [utility price cuts] cannot continue. It is all about the elections. They use this in every interview, in every speech, but when Fidesz came to power, the prices were raised, and now they are [only] returning to earlier levels. But what they are doing is not sustainable," she tells bne.

Indeed, Fidesz tax policies have, on balance, left many households poorer, certainly among the lower-income groups, Szel argues. "They started all these taxes, and because of all the mess of taxes, household expenditures have actually gone up," she says.

As for the "successes" regarding jobs, these are largely the result of government work programmes and Hungarians working abroad continue to count in the domestic employment numbers."There are actually fewer private sector jobs in Hungary now compared to when Fidesz came in," she argues. Indeed, the latest statistics reveal there were 29,000 more jobs in the competitive sector in 2010 than in 2013.

Plugging holes

Independent analysts point out that the government has done little to reduce government spending, so promises of reduced labour taxation in the 10-point programme inevitably means additional taxation elsewhere.

Andras Balatoni, senior economist with ING Bank in Budapest, says the Fidesz government has certainly reduced personal income tax revenues, but to ensure a balanced budget has been forced to levy "distortive taxes on the corporate sector."

He points to OECD data that reveals special taxes on the Hungarian banking, energy and retail sectors that amounted to HUF676bn (€2.2bn), or almost 2% of GDP last year. "I believe that the resultant economic impact is near zero, or even negative. Thus, without decreasing the expenditure side of the budget, it [reducing taxes on wages] is not an option, without increasing other taxes," he says.

Such criticism is mild compared to Orban's most strident opponents, such as Balint Magyar, a former liberal MP, who accuses the prime minister and a coterie of his allies of creating a "mafia state," channelling millions of euros into companies controlled by Fidesz-linked oligarch interests via state and municipal tenders.

Despite all these attacks, Orban and his government remain popular with the middle class and wealthier segments of society, the beneficiaries of Orban's "flat tax" scheme, while his campaign on utility prices has won supporters in all income segments.

Given the government control over much of the media, Orban's popular, nationalistic rhetoric and the wall-to-wall advertising campaign insisting that "Hungary's Performing Better" - along with a series of timely scandals damaging the disjointed opposition alliance - it is little wonder that opinion polls reveal that 48% of decided voters support Fidesz. Representing a 17-percentage-point lead over the opposition alliance, it points to a second consecutive turn in office for the Fidesz leader - and, quite possibly and most worryingly for the opposition, with another two-thirds "super-majority" in parliament.

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