In an article published in Saturday’s Népszabadság, Hungarian Central Bank (MNB) governor András Simor said his hand was being forced by worse-than-expected inflation, rising global interest rates and deteriorating prospects for domestic growth. At the same time, he pushed for a long-term solution to Hungary’s growth problems and chronic overspending.
Simor said recovery from economic slowdown in the wake of the government’s austerity measures is taking longer than expected, mainly because budget spending has spun out of control, while investment has dropped below levels seen in the second half of the 90s.
Although the country’s employment rate is one of the lowest in Europe and productivity is falling steadily, virtually nothing has been done since 2001 to address these problems.
Hungary has been plagued by high production costs, low employment and insufficient spending on R&D and innovation, while state administration is costly and inefficient.
Meanwhile, political corruption distorts economic decisions and makes public procurement expensive, Simor added.
To make matters worse, payroll taxes have been kept unduly high to feed the country’s lavish welfare and housing subsidies, which has blown government spending out of all proportion, now reaching nearly 50% of GDP, compared to an average of 40% in the Visegrád Four countries.
Hungary must also change its flawed education, welfare and employment systems and put an end to its policy of raising the minimum wage, while social benefits should be better targeted at encouraging employment.
Simor said Hungary should cut state spending by Ft 2 trillion-Ft 2.5 trillion (€8 billion-€10 billion) to make room for substantial tax cuts and boost economic competitiveness.
The “real question” for Hungarians today is whether they choose to suckle on “the teat of the state” and fall behind Europe or be responsible and fend for themselves in order to catch up with the Visegrád countries.
“Lavish” welfare system? What part is lavish? The pension that people contributed towards for 40 years and now cannot pay the heating bill with? The health care system where there are 15 beds for 100,000 children in Buda?
…and it must be less “lavish” very fast and very soon. People seem to believe that just Viktor Orban comes back, there will be oceans of money. Maybe that illusion need to be put to the test, before any real reforms will be accepted.
There will be 5-10 very hard years in front of us.
Rolrox, the whole welfare system is lavish – it costs a huge proportion of Hungary’s GDP. You are cherry picking specific, largely irrelevant, facts to try to make your point. Some Hungarians cannot pay their heating bills because the heating bills are so large. The fault lies in years of subsidies, which meants that no one had any incentive to try to reduce energy consumption. So what is there are only 15 hospital beds for children in Buda? Can’t they go to Pest???
Pensions in Hungary are so low, because the (not inconsiderable) pension pie is shared among so many. 10% of the working age population have pensions.
Yes, the health care system in Hungary is falling apart. But, guess what, the population has just voted no to any reform. Hungarians simultaneously say that the health system is failing but that they don’t want to change it!?!