The position of Fidesz - Hungarian Civic Union on the economic policy of the Medgyessy-government

Dátum: 2003-06-10 10:01:00, eredeti URL: http://archiv.fidesz.hu/index.php?Cikk=11476
KCMDB-be feltöltve: 2024-05-04 18:24:49.562608, Feltöltő: fidesz_hu_scraper_v2

The Medgyessy-government's economic policy in the first year of its tenure may be characterised as being adrift. Despite the deteriorating external environment, no significant decisions took place in the last 12 months. The calls of Fidesz for projects to stimulate the Hungarian economy were ignored, moreover, the programmes aimed at helping small- and medium-sized enterprises were halted. The Hungarian government has gone from being an active player to a passive contemplator of events, and the austerity package heralded on 4 June is a direct consequence of this incapacity.

In the last 12 months, all important economic figures have deteriorated, with the exception of inflation:

- Budget deficit has been steadily increasing, and reached HUF 400 billion (approx. EUR 1,6 bn) by this April. This is 48 percent of the deficit projected for the year 2003;

- State debt has increased by 20 percent in the last 10 months;

- There are 30,000 more people out of work than a year ago;

- Current account deficit is 100 percent higher compared to the same figure a year ago (1st quarter 2002: EUR 480 million, 1st quarter 2003: EUR 987 million);

- Trade balance deficit is 55 percent higher than a year ago (1st quarter 2002: HUF 183 bn, 1st quarter 2003: HUF 285 bn);

- Economic growth has slowed down significantly: with only 2,7 percent in the first quarter of the year 2003, Hungary is lagging behind other accession countries. GDP-growth is approaching or even exceeding the 5-percent mark in Romania, Slovakia, Bulgaria, Latvia, Lithuania and Estonia;

- For the first time in 13 years, the influx of foreign direct investment was less than the amount of FDI leaving the country in the period January to March 2003 (balance: approx. EUR -70 million).

- Competitiveness has also suffered: according to the Swiss research institute IMD, Hungary has fallen back to being the 23rd (from being 18th last year) in the category of nations under 20 million inhabitants. Foreign direct investment has decreased significantly.

The socialists and the free democrats promised significant tax cuts in the election campaign. The socialists also promised that their new Simplified Taxing Scheme (EVA) would facilitate the life of about a million entrepreneurs. In reality, the government announced that personal income tax rates remain unchanged for an indefinite time, local taxes and have increased, excises have increased by one-third, VAT has increased in the case of several products from 12 to 25 percent. The Simplified Taxing Scheme turned out to be available only for 60,000 entrepreneurs.

In the election campaign, the socialists promised to continue the Széchenyi Plan, designed to help small- and medium-sized enterprises. Similarly, they promised to respect the housing loan schemes put in place by the Orbán-government. In reality, the Medgyessy-cabinet dismantled the Széchenyi Plan and offered no other programme for SMEs. As far as the housing loan schemes are concerned, state contribution to guaranteed interest rates have been reduced, access to such loans have been restricted a week ago.

The drastic measures introduced by the minister of finance on 4 June are direct consequences of the incapacity and the lack of clear strategy that the government has demonstrated during the last 12 months. Analysts consider the recent measures late and incomprehensible that will miss their original aims. Fidesz has repeatedly stated that operating with the rate of exchange may offer short-term benefits, but does not provide a long-term solution to improving competitiveness and confuses market actors. Insufficient as they are for improving competitivity, these measures may well increase import prices, interest rates and inflation. The declared goals of the government (stimulating exports, improving competitivity) may have been achieved with indirect measures: by cutting taxes and social security contributions, stimulating investments, for instance. This recently introduced package is no more than firefight. It does not provide a solution for the real problems of the Hungarian economy, namely the slowdown of economic growth, budget deficit and unemployment. A solution presupposes a genuine economic strategy, a stimulation of investments and the restart of the economic engines halted last year, rather than such expletive actions.