Hungary’s “professor of reform” headed for “D+”

Former finance minister and current Central European University CEO/professor Lajos Bokros, who is widely credited with bringing Hungary back from the fiscal brink in the mid-90s, has of late been loudly pushing for the government to get its finances in order. While I used to be a big fan of the man whose name still causes many Hungarians to shiver or spit, I’m beginning to get serious second thoughts. The basic problem is that, whenever the Big B is quoted saying something about reforming Hungary’s dysfunctional public finances, his solution always seems to involving raising taxes.

This week, for example, he apparently told a conference in town that he was in favor of getting rid of the personal tax exemption for minimum wage earners, enacting a flat monthly health care contribution of Ft 10,000, and adopting a value-based property tax.

While there are good arguments for all three of these ideas, the bottom line is that it is the spending side of the equation, rather than the revenue side, that is really the problem in Hungary. By this I mean that, even if the ongoing fiscal gap were successfully closed via more (or better collected) taxes, the country’s economy would still suffer from painfully slow growth, and all the social and political ills that go along with a dysfunctional public sector that eats half the national income. But it is not clear that it is even possible to close this fiscal gap, given that every forint which gets sucked into the Hungarian state quickly finds an interest group that has already placed a claim on it. In other words, more taxes just feed the beast.

Again, I am sure that the esteemed professor knows and has said that more tax revenue isn’t the only answer. But if he doesn’t start stressing the spending problem in his various lectures, he’s only going to help ensure that his most important student – Hungary – fails.