Hungarian government’s austerity

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By Markus Salzmann:

Hungarian government plans further austerity measures

21 September 2012

The Hungarian government led by Prime Minister Victor Orban of the right wing Civic Union (Fidesz) is planning further austerity measures to meet demands made by the International Monetary Fund (IMF) as the condition for further loans.

Speaking on behalf of the Hungarian government, Mihaly Varga declared that the IMF would get details this week on the new austerity measures. “With this letter we want to make clear that the Hungarian government is willing to continue talks,” Varga declared, adding that the talks were due to resume next month.

During their last visit in July, representatives from the IMF and the European Union made absolutely clear that Hungary had to implement further austerity measures in order to achieve its budget targets for 2013. Until the start of September, however, premier Orban insisted in his usual populist manner that Hungary could not stand any more sacrifices.

Such statements are aimed purely at defusing popular opposition to further cuts under conditions where Hungary is totally dependent on IMF loans. The country faced bankruptcy in 2008 and was forced to accept such loans. Now Hungary is in the midst of a recession and its outlook is bleak.

The pro-government daily Magyar Hírlap has published the first excerpts of the planned austerity measures.

Massive job cuts are planned especially in the public sector, and empty posts will not be filled. Those who are able to keep their jobs will be expected to take considerable wage cuts. As was the case two years ago, job cuts in local government are also on the cards. The total staff costs for public service are to be frozen at the current level up until 2015. With an annual inflation rate of over 5 percent, this means dramatic cuts in wages for employees.

Further cuts are planned to pensions and child benefits together with an additional increase in retirement age and an increase in income tax. These “structural improvements” should amount to a total of 2 percent of GDP. Subsidies for public transport are to be axed and more state-owned companies privatised. Meanwhile the banking sector is to receive additional support. Experts declare that the removal of public subsidies for public transport is likely to lead to a collapse of the transport system.

Orban has already responded to the demands of the IMF regarding the subject of the country’s central bank and bank tax. The government plans to abolish its largely symbolic taxation of financial institutions next year while granting more autonomy to the central bank. Fidesz has postponed the vote on its budget for 2013 in order for the IMF to make its position clear.

Orban’s planned austerity measures will undoubtedly be met with massive popular opposition.