From the Economic Success of Today to the Challenges of the Future – Hungary At First ‘Site’ Conference
Péter Cseresnyés 2019.10.24.
The Hungarian economy is improving at a reassuring rate, as a result of the policies of the past years—speakers expressed this sentiment at the Friends of Hungary Foundation’s conference where economist-politicians and economic experts examined the past few years, evaluated Hungary’s current economic situation, and sought answers to the biggest challenges of the future.
All the presenters highlighted Hungary’s impressive GDP growth in comparison to all other EU countries. The Orbán government’s pivot towards placing the focus of tax policies on consumption since 2010, rather than on workers and their salaries, was praised as an important step. Speakers also emphasized the potential for economic revival in the government’s family-policies.
Chairman of the Fiscal Council: GDP growth higher than growth of debt
Árpád Kovács, Chairman of the Fiscal Council, reached back to the time of the regime-change to explain the Hungarian economy’s performance and transformation in the past decades. The period following the regime-change was difficult: in the first years the GDP decreased and national debt increased, which by 1993 reaching a 90 percent debt/GDP ratio. At the time of the millennium, and the first Fidesz government, economic trends were successfully improved to 3.5-4.5 percent growth, while national debt fell to about 50 percent. However, during the socialist-liberal government which began in 2002, more loans were taken on, national debt was increased—which after the global economic crisis was again at 80 percent—and by 2009, GDP had dropped by 6 percent. Though the Fidesz-KDNP policies dealing with the crisis in 2010 were branded as “unorthodox” by critics, by 2013 the economy was growing again, and the debt ratio was decreasing as well.
Chairman of the Fiscal Council, Árpád Kovács. Photo: Tamás Lénárd
The Fiscal Council was created in 2008 and is an independent body. Its mission is to evaluate and critique the budget plans, with special consideration whether it will decrease the national debt/GDP rate; the aim is to moderate the rate at 50 percent. (Basic constitutional law makes this a requirement for governments.) If they do not see this possible, then they can veto it so that the budget ends up in parliament–the only governmental organ of its kind in Europe. In Árpád Kovács’s words: their task is to prevent the government from indulging in “fiscal alcoholism”.
The Chairman of the Fiscal Council believes that in dealing with the global financial crisis, taxing consumption instead of work was essential; additionally, they took measures to curtail the shadow economy (for example with online cash registers).
By 2020 the Fiscal Council is expecting a one percent shortage with the same amount of reserves—so in essence a balanced budget. Árpád Kovács sees this as a fantastic, never-before-seen achievement for Hungary.
State Secretary: High GDP growth, high rate of foreign investors
High national debt, high fiscal deficit, severe FX indebtedness of households, slow growth, high inflation, high unemployment—Gábor Gion the State Secretary at the Ministry of Finance listed, in describing what problems the government faced in 2010. To briefly explain the situation, he labelled it an “economic mess” and he emphasized that those who may criticize the current economic situation should look at where it started from. He believes the country’s economic situation is entirely different than it was; every indicator has been successfully improved. Today, Hungary’s GDP growth is one of the highest in the EU, thanks to the customized policies of the government.
State Secretary Gábor Gion. Photo: Tamás Lénárd
The politician highlighted the many foreign investments, which he believes have two causes: political stability and low income tax– while relatively low wages are “only a bonus”. Gábor Gion does not agree with the criticism that the Hungarian economy relies too much on the automotive industry and is thus more vulnerable in the case of an economic crisis. He emphasized: the automotive companies located in Hungary mainly manufacture high category cars, the demand for which was not diminished by the 2008 crisis either.
The government’s basic goal is to always keep Hungarian economic growth minimum, 2 percent above the EU average. The Secretary of State holds, that with stable growth and decreasing deficits, Hungary can reach the Maastricht Treaty’s debt ratio criteria of below 60 percent by 2022.
Chief Executive Officer of Gedeon Richter: the exceptional and the less remarkable economic indicators
Gábor Orbán is the Chief Executive Officer of Gedeon Richter, the largest pharmaceutical company in Central Europe, also acknowledged the successes of the Hungarian economy, especially the low deficits, GDP growth, and low unemployment—but as a company executive, he warned of problems that could block further development.
Gábor Orbán, CEO of Gedeon Richter. Photo: Tamás Lénárd
The Executive emphasized: the current budget surplus is positive thanks to EU support, without it, this would not be possible. Though industry numbers are good, productivity must be improved. Aside from this, Hungary does not dedicate enough to research and development—this must be immediately fixed.
Chief Executive Officer of K&H Bank: stable economic growth
Hungarian banks had to endure many difficulties in the early 2010s (mainly referring to the “bank taxes” imposed by the state onto the sector) but they are currently in pretty good shape—said David Moucheron, Chief Executive Officer of Hungary’s second largest bank, K&H. He pointed out the positive improvement of the decreasing amount of defaults on loans, yet he sees the enormous government burdens (the highest in Europe) as disadvantageous to development. This, in turn, makes operations and loans more expensive, and therefore negatively affects companies’ competitiveness and the overall growth of the economy.
David Moucheron, CEO of Bank K&H. Photo: Tamás Lénárd
The K&H Executive, however, also approved of the “active and creative” ventures of the National Bank and other government institutes which include the goal of creating a good economy among their political aims. Among these, he cited the “baby boom loan”, the corporate bond program, subsidized retail government bonds, and various customer-friendly regulations.