HUNGARY’s financial and monetary situation

Az ATTAC logója

Az ATTAC logója

Contrary to most EU countries, the recession and sluggish growth in Hungary has been accompanied by relatively high inflation rates (about 4%) throughout the past couple of years due to the upward modification of VAT and excise duties. In parallel, interest rates have been among the highest in the EU (well above 7%) in reaction to the high consumer price levels. The exchange rates have been extremely volatile during the past few years, hardening the lives of Hungarian citizens, who took up loans in foreign currencies (mainly in Swiss francs). The situation of these households has become very critical. Despite the government interventions/measures these steps could not solve this painful issue and many families in Hungary are now facing evictions from their homes.

As to the public finances, the Hungarian performance has been among the worst ones in the EU before the crisis. Hungary has been under excessive deficit procedure (EDP) since 2004, which was lifted only some days ago. Consequently Hungary could not pursue an anti-cyclical economic policy in the crisis. On the contrary the government has introduced severe fiscal austerity measures in the middle of the recession.

Actually, the Hungarian public deficit figures show a promising downward trend recently, however it is still questionable that the below 3% level can be maintained in a sustainable manner for the long run due to some one-off or temporary revenue items. At the same time Hungary started to decrease its public debts, too, but due to the fact that 40% of the debts are denominated in foreign currencies the debt ratio is highly exposed to exchange rate fluctuations. Furthermore, until there is no economic growth, it seems no chance to grow out of the indebtedness.

As per the Hungarian government Convergence Program 2012, new banking tax called financial tax or Tobin tax was introduced, but it has nothing to do with ATTAC’s main demand, because this tax was not imposed on the financial speculation, but it mainly hits ordinary citizens’ bank transfers. Extraordinary sectoral levies were also imposed on supermarkets and service providers (e.g. telecom and insurance). Simultaneously the personal income tax was reduced to a flat rate of 16% and the corporate tax was cut back to 10%. At the same time, the VAT was increased from 25% to 27%, which is one of the highest in the EU. These latter measures were beneficial for the rich and the middle class.

The crisis and the fiscal consolidation measures of the government have had unfavourable impact on social policy in general. The radical reduction of the unemployment assistance, or the drastic cut back of state funded places in higher education might have longer term repercussions for the society.

Budapest, 26th June 2013. június 26.
Matyas Benyik
Chairman of ATTAC Hungary

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