Monetary policy is set to shift towards a more hawkish stance as early as June, with a possible hike in the base rate, György Matolcsy, the governor of the National Bank of Hungary (MNB), told a conference on Wednesday. Meanwhile, the Prime Minister spoke of further tax cuts for SMEs and families and a potential hike of the minimum wage.
A persistent rise in inflation would endanger the recovery, he said.
The Hungarian economy can withstand a rate hike, the governor said, adding that given the risk to the economy posed by inflation, the Monetary Council is compelled to raise interest rates.
Prime Minister Viktor Orbán told the conference that the government was aiming for the deficit to shrink to 5.9 percent of GDP in 2022, down from 8.1 percent in 2020 and a projected 7.5 percent this year.
Orbán said full employment and the loan moratorium were key steps to avoiding the long-term economic effects of the pandemic. The moratorium on loan payments was pushed back until September to allow for talks on a gradual phasing out of the measure, he said.
He said that though it was understandable that banks and the financial sector wanted to return to regular loan repayments as soon as possible, “a cautious plan” was needed, adding that the phasing out of the moratorium was still subject to talks.
Orbán said the government’s aim was to raise the minimum wage to 200,000 forints (EUR 575). However, a hasty hike could lead to small and medium-sized enterprises breaking under the strain, as well as to layoffs and to growing numbers of jobseekers rather than full employment, he said. The minimum wage hike would possibly happen in two phases, he said, alongside considerable tax cuts for SMEs.
The prime minister called on László Parragh, the head of the Hungarian Chamber of Commerce and Industry (MKIK), to “think one, two or even three years ahead” and sign a comprehensive agreement with the government on the minimum wage “without going below 200,000 forints”.
The government must also complete the reintroduction of the 13th month pension, giving pensioners the second weekly instalment of the pension next year, he said.
Concerning the reboot of the economy, Orbán said the government’s 2022 budget bill served the recovery of the economy from the coronavirus crisis. He said the bill was not an “election budget” as that would not allow the jump-start of the economy.
He said Hungary faces a challenge that is not of a political nature, but extends across the entire economy and affects the whole of society. The response to that challenge cannot be one that is only of a political nature, he added.
“That requires a very broad cooperation among all economic players,” he said.
Orbán said economic policy cannot be implemented on a party platform. “Jump-starting the economy is not a party issue, it requires everybody,” he added.
SMEs should also be offered measures balancing the interest rate hike and the phasing out of MNB’s credit-for-growth scheme (Nhp), Orbán said. The new resources should be cheap, government-funded and carry interest below 0.5 percent, he said.
Further, low-earning parents should be able to reclaim their 2021 PIT in 2022, Orbán said. The measure should come into force if economic growth reaches 5.5 percent, he said. The step would cost the budget 550-580 billion forints, he added.
“I’m proposing that we shouldn’t redistribute this or put it anywhere, but simply give it back to those who worked for it and earned it before paying it into the budget,” the prime minister said.
Orbán said that because the highest earners did not need to reclaim their PIT, the line should be drawn at the average income. Parents who make less than the average income should then be given back their income tax so that they could add it to their savings, he said.
The step would cost the budget 550-580 billion forints (EUR 1.6-1.7 billion), he added.
As a next step to restarting the economy, two operative boards will be set up, one in charge of restarting the economy and the other tasked with relaunching social life, the Prime Minister announced at the same conference. The board focusing on the economy will be led by Péter Szijjártó, the minister of foreign affairs and trade. The other will be led by Katalin Novák, the minister in charge of family affairs, Viktor Orbán revealed.
“At times of crisis there’s no normativity,” he explained. “A crisis cannot be resolved with a consistent economic policy guided by liberal principles because this leads to austerity.” In such a situation, he added, the principle of “equal treatment of players” must be altered and those who suffered the most or could provide the most for a recovery in particular should be “handled differently,” he argued.
Finance Minister Mihály Varga said that inflation was expected to stabilise around 3 percent, coming down from the currently “temporary” high rate.
Hungary’s economy protection action plan amounted to 30 percent of GDP, Varga said, adding that more than 4,000 billion forints (EUR 11.5bn) of that has been spent on investments.
The economy became more resilient to the fallout of the pandemic by the first quarter of 2021, gaining an edge over other EU member states, Varga said. The rebound is also expected to be swifter, possibly in the second half of this year, he added.
The minister noted the budget deficit had shrunk considerably in 2021, adding that it would return to the 3 percent Maastricht norm by 2024. Hungary’s fiscal policy, he added, supported sustainable growth.
The conference “Relaunching Hungary” was organised by pro-government business daily Világgazdaság.
featured image via Szilárd Koszticsák/MTI