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Rumours about structural reforms and spending cuts

September 27th, 2014

Left-wing and liberal commentators accuse the government of planning brutal cuts as Minister of National Economy Varga announces plans to reduce the rate of government spending. A conservative blogger suggests that the rate can be reduced without major austerity measures, provided the economy keeps growing at its current rate.

On Monday, Heti Világgazdaság reported that PM Orbán “can hardly wait for election year to be over” to start a fully-fledged reform program. According to the left-liberal weekly’s unnamed governmental sources, PM Orbán expects the structural reforms involving the health care system, education, public administration and welfare “to be painful” and that Fidesz will lose some of its popularity as a result.

On Tuesday, Minister of National Economy Mihály Varga said at a conference that the government wants to incrementally reduce the rate of redistribution to 45 per cent from the current 49.8 per cent of GDP. According to the calculations of Napi Gazdaság, this would imply a total of 1,700 billion Forint cuts in public spending over three years. Napi Gazdaság suspected that the government will only announce the huge reforms and cuts after the October 12 municipal elections, thus no time will be left for discussion of the plans before next year’s budget is passed by Parliament by the end of October.

On Friday in his weekly radio interview, PM Orbán said that “although the Socialists are hoping for it, there will be no cuts”.

Brutal spending cuts are on the table,” László Szily comments in Cink. The liberal commentator claims that as Minister Varga has ruled out the possibility of tax hikes, public spending can only be reduced through austerity measures.

Magyar Narancs suggests that the cuts hinted at by Minister Varga will in total be larger than the so-called “Bokros-package” introduced in 1995 by the MSZP government in order to avoid insolvency through immediate and drastic spending cuts. The left-liberal weekly suspects that as a result of the cuts, many people working in the public administration will be dismissed and public service will become even more centralized.

There is no doubt that the rate of redistribution needs to be significantly reduced, Kettős Mérce writes. The left-liberal leaning blog believes that Hungary does indeed need to cut redistribution in order to boost economic growth. Kettős Mérce, however, fears that the losers of the cuts will underprivileged Hungarians. The blog accuses the Fidesz government of following conservative economic principles. The government is again likely to save on those who are in the most desperate need of welfare and help, Kettős Mérce speculates. In an aside, the blog notes that Fidesz would contradict its own anti-market rhetoric if it allowed private investors into the health care and educational system.

Magyar Hírlap’s Csaba Szajlai contends that the Hungarian economy needs simpler bureaucracy and less redistribution in order to become more competitive. The conservative analyst points out that without growth public debt cannot be reduced. He goes on to note that Hungary can only hope for more job opportunities, prosperity and development if economic output increases. Szajlai believes that the swift strengthening of the Forint against the Euro after Minister Varga’s announcement shows that markets would also welcome the governments’ alleged plans.

The announced cuts in spending can be achieved without major austerity measures, Ákos Gergely Balogh claims in Mandiner. Balogh recalls that according to the calculations published by Index.hu, if economic growth nears 3 per cent in the next three years, inflation stays low and the government does not increase spending, the rate of public spending will decrease. Bearing in mind that the Orbán government has keept the deficit below the 3 per cent even in election year, Balogh believes that we have good reason to assume that it can show restraint and keep spending under control in the future as well. As for the left-wing accusations of cuts, Balogh writes that it is not surprising that the opposition uses the opportunity to incite fear in the public through accusing the government of cuts – after all, Fidesz did the same as an opposition party until 2010.

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