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Will the new cocktail work?

June 29th, 2011

Fidesz secured a two-thirds majority in last year’s election by promising a stronger welfare state. Left-wing commentators suggest that in government they have reneged on their campaign pledges and taken an anti-welfare turn. Overall state intervention in the economy, nonetheless, has not decreased.

“Gaining popularity (even among the poor) by promising improved law and order, then following policies once in government which hurt the poor, is a typical right wing turn. … But winning elections with a welfare program and then starting an anti-welfare revolution is a real political innovation”, writes Miklós Hargitai in Népszabadság.

Before last year’s election, the right-wing party harshly criticized the Socialists for cutting welfare spending, most notably on families and pensioners. But during the year which has passed since their victory, PM Viktor Orbán has refocused economic policies on cutting debt, which “in practice means maximizing revenues and minimizing expenditure”.

This strategy, Hargitai concludes, will not work. The economic policies of the government favour the interests of the upper middle classes. But since employees are the majority, a party that makes no alliances with the unions (or, even worse, fights against them) cannot dream of winning the next elections.

“Whilst cutting back the welfare state, the government is actually increasing public intervention in the economy”, writes Éva Várhegyi, analyst of the left-liberal leaning Financial Research Plc. in Figyelő.

“The price is paid by second-class citizens – those living on benefits and pensions”, Várhegyi suggests. Public spending cuts affect them directly, while the extra taxes imposed on multinational corporations as part of the war on debt threaten economic growth, which makes any long-term increase in welfare spending unlikely.

The government, however, does not follow clear-cut libertarian principles, Várhegyi notes, as it has – in what she calls “patriotic protectionism” – purchased 21 percent of  the shares in the Hungarian Oil and Gas Company (MOL) for 500 billion HUF. Further nationalizations are also in sight.

“The economic policies followed by the second Orbán government mix elements that are rational – in two different systems”, Várhegyi concludes. Only time will tell how this mixture of libertarian policies and interventionism will turn out.

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