László Palkovics, Orbán’s man at the helm, announces the government’s economic stimulus plan – Hungarian Spectrum

by Kevin | Last Updated: April 7, 2020


No one can accuse me of undue pessimism, as the readers of Hungarian Spectrum may have noticed over the years. Yet when I read in 444.hu that László Palkovics, the man entrusted with the revival of the Hungarian economy, thinks that this crisis can offer unexpected economic possibilities for the country, I was unconvinced. I must admit that I don’t see much of a silver lining, especially given the meager stimulus program. But Palkovics pressed his point and said that, because of these undisclosed opportunities, “they don’t want to ask for outside help.”

Here are a few of the items in the government’s stimulus plan.

Although all Fidesz politicians insist that “there is no such thing as free money,” Palkovics said that during the pandemic crisis the government will pay 70% of the wages of employees who have been kept on the payroll on a part-time basis. Yesterday Viktor Orbán called the program “a unique Hungarian solution,” but Palkovics admitted today that the program, called Kurzarbeit, already exists in Germany. The duration of the assistance is three months. Whether the economy will be robust enough in three months to turn all part-time workers back into full-time workers I very much doubt.

As for “engineers and employees of research and development firms,” they will receive only 40% of their wages from the government because “in their case, part-time employment is not applicable.” I am guessing here that he is distinguishing here between hourly workers and salaried workers, but I’m not sure that I’m right.

The social security tax, to which both employers and employees contribute, and which is currently 17.5%, will be lowered to 15.5% as of July 1, 2020. In addition, the deadline for filing tax returns will be extended until September 30.

To outsiders, some of the items are puzzling. For instance, there is a modification to the “Electronic Public Procurement System” (EKR), introduced in Hungary in 2018, according to which anyone who wants to be the recipient of a government tender must conduct his business electronically. Those who use the system will now be given a guarantee waiver from paying customs duty. From the text it looks as if the government took its sweet time reimbursing businesses for import charges that they didn’t owe, for one reason or another. Now, the government promises to introduce “the possibility of automatic reimbursement.”

László Palkovics, minister of innovation and technology, announcing the government’s program

The introduction of these easements reveals some of the tricks the government introduced to the tax system to its own advantage. Here is another example. It looks as if the government was able to retain large sums of paid value added taxes for as long as 75 days. Now, the government has generously lowered its retention to 30 days and, if the taxpayer is “trustworthy,” he can have his money back in 20 days.

And while we are on the subject of taxes, it is a well-known fact that, although the Orbán government promised a tax-return form so simple that it would not be larger than a coaster under a beer mug, today it is even more complicated than before. Now, however, the government once again promises to simplify the forms, which allegedly entails “the possibility of lowering taxes.” They also promise not to punish “accidental omissions.” Finally, people on leave without pay will not lose their insurance as long as their employers pay “ekhó” on their behalf. This strange-sounding tax stands for “egyszerűsített közteherviselési hozzájárulás” or “simplified tax contribution.”

It is highly unlikely that these measures will put enough extra money in the pockets of employers and employees to help re-start the engine of the economy. And, for retirees, the extra week of pension, starting in February 2021, will not compensate for the higher prices of groceries they must buy today. Palkovics made a vague announcement about assistance to parents who can’t work outside of the house because of sick or disabled children who need constant care. Although the opposition has been demanding an increase in the piddling amount of family support for children for years, the government has steadfastly refused to make any change, I assume because it is considered to be money nobody worked for. The monthly amount of government support for families ranges, depending on the number of children, from $37 to $49. Every child who is enrolled as a student in a primary and secondary educational institution can be counted, but they cease to be a dependent on the final day of the school year when they complete their formal education. Now, the government has extended this cut-off. Families will receive support payments until the end of the crisis.

The paltry assistance to the poorer segments of society sharply contrasts with the generosity, even during a mounting economic crisis, toward the better-off classes. Large families are still getting two million forints toward the purchase of a car seating seven. Until now, families had six months to take advantage of the offer. This regulation will change. They can now postpone their decision on the purchase of a car until 60 days after the end of the emergency situation.

The really important announcements were made by György Matolcsy, the chairman of the central bank, starting with raising the interest rate from 0.9% to 1.8%. The forint immediately reacted to the news, strengthening from 366 forints to the euro to 356, effectively settling at 358.

Otherwise, as I wrote yesterday, the central bank’s remedy seems to rely on government guaranteed loans to Hungarian companies. Zoltán Pogátsa, a well-known economist, while praising the increase in the very low interest rate to bolster the forint, is convinced that “Orbán doesn’t understand the problem” when thinking in terms of massive loans because what is today in short supply is “demand.” That’s why money should be put into the hands of consumers. Giving loans to companies cannot create consumer demand. “Today we don’t have a crisis of credit or liquidity. The usual lowering of taxes and introducing loan programs will not work.”

A more comprehensive criticism of the Hungarian program will follow tomorrow.

April 7, 2020


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