Economic minister predicts recession as government announces stimulus plan

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Economic Minister Mihály Varga told Bloomberg News on Thursday that the government expects a recession to hit Hungary, predicting a 3% negative GDP growth rate for 2020. This contradicts statements by National Bank Governor György Matolcsy, who at the beginning of this week predicted GDP growth of 2-3%, leaving a 5-6% gap between GDP prospects offered by two of Hungary's most influential financial policy figures.

While the fate of the Hungarian economy remained uncertain, the government announced details on Saturday of a coronavirus defense fund and economic stimulus package, which the prime minister's chief of staff Gergely Gulyás said are set to take effect on April 15 or the beginning of May.

Some details of the defense fund plan provoked an immediate backlash from opposition parties and municipal leaders, who argued that some measures singled them out and deprived them of important fiscal resources.

Coronavirus defense fund

Gulyás announced that the government will use budget transfers and special taxes to establish a Ft 663 billion (€1.85 billion) fund for protection against the coronavirus pandemic. According to Gulyás, the government believes in "sharing the burden" of the cost of protection measures, and announced that the government would finance the fund with appropriations from:

  • banks, which would contribute Ft 55 billion (€155 million)
  • multinational retail chains, which would contribute Ft 36 billion (€101 million)
  • political parties, each of which would contribute 50% of their state subsidies to the fund, totaling Ft 1.2 billion (€3.3 million)
  • local governments, which would be forced to divert their motor vehicle taxes into the fund, totaling Ft 34 billion (€95.6 million)

(Some critics of the plan argued that much of the funds for coronavirus protection and the economic stimulus are not new government expenditures, but budget transfers and simple renaming of existing funds.)

Opposition parties, already cash-strapped, argued that the appropriation of 50% of their state funding would place further financial pressure on them as they prepare their 2022 election campaigns. While the governing parties will also be required to make the same contributions, the appropriation will disproportionately affect the smaller parties: Fidesz's party apparatus is significantly better funded, and much of its campaigning is done by publicly-funded NGOs like the Civil Cooperation Forum (CÖF) and through publicly-funded government communication campaigns which are, in terms of content, nearly indiscernible from Fidesz messaging.

The diversion of motor vehicle taxes from municipalities caused a stir among opposition mayors, many of whom saw the move as an attempt to further weaken local autonomy, especially in those towns and cities where the opposition took power after elections in October. Mayor of Budapest's First District Márta V. Naszályi argued in a statement that the economic slowdown caused by the virus would deprive local governments of income, and the government's decision to strip them of motor vehicle taxes would take away one of their only remaining sources of fixed revenue.

"The government has actively used this situation to increase the burden on local governments," Naszályi wrote. "One of the most stable revenues for towns is the motor vehicle tax, which comes in independently of tourism, viruses or natural disasters. The government would now stick its hands into this sum and jeopardize the functioning of towns and districts."

In another statement, 41 opposition mayors said the government had left municipalities to counter the effects of the pandemic alone, adding to their responsibilities while failing to provide them with adequate supplies.

"The government is using its extraordinary powers, which eliminate democratic controls, to bleed out local governments," the statement reads. "We're not asking for anything other than what the government is emphatically asking from the citizens: cooperation." 

On Sunday, Prime Minister Viktor Orbán announced that public parking would be free across Hungary beginning on Monday. Those who can should use their own vehicles for transportation in order to reduce direct contact between people, Orbán said.

But the measure was viewed by some mayors as another attempt to deprive local governments of revenue. Mayor of Budapest's Ninth District Krisztina Baranyi said the goal of the measures is to "systematically bleed out the local governments rather than taking substantive action against the pandemic."

District IX Mayor Krisztina Baranyi.Fotó: Koszticsák Szilárd/MTI/MTVA

Baranyi argued that in addition to receiving additional responsibilities from the government, like caring for the elderly and those placed in quarantine, desperately needed funds had been taken away from her district by the free parking order and the appropriation of motor vehicle taxes. 

Others, including Fidesz mayors, also opposed the free parking order. Sixth District Mayor Tamás Soproni (Momentum) said, "This is part of the political game with which Orbán is manufacturing enemies out of the opposition and local governments for the 2022 elections. It's disgusting, there's no other word for it." Soproni, as well as Fidesz district mayors Zoltán Pokorni (District XII) and Péter Szentgyörgyvölgyi (District V) argued that free parking would only serve to increase traffic in the districts and encourage people to leave their homes.

Economic recovery plan

Minister of Innovation and Technology László Palkovics announced on Tuesday that the government would allocate Ft 9.2 trillion (€29.5 billion) in the coming years to economic protection and recovery. Some of the benefits include workfare conditions.

Here are some of the measures Palkovics announced.

  • for three months, the government will supply 70% of lost wages to workers whose hours have been cut, while employers will have to cover the remaining 30%. Only workers who use their lost working hours on "productive activities" like education or "work useful for the employer" will be eligible for the benefits. 
  • engineers and researchers will have 40% of their salaries covered by the government.
  • social security taxes will be reduced from 17.5% to 15.5% beginning July 1 and the deadline for filing tax returns will be extended to September 30.
  • simplified state tenders will be offered to developing companies that will keep their workers on the payroll.
  • the "13th month" pension will be gradually re-introduced, with pensioners receiving an extra week's payment every February from 2021-2024.

Additionally, Ft 600 billion will be used to bail out the tourism industry, while Ft 2 trillion in subsidized low-interest loans alongside Ft 500 billion in state guarantees will be extended to struggling businesses.

Minister of Innovation and Technology László Palkovics.Fotó: Szigetváry Zsolt/MTI/MTVA

The economic measures do not include any additional assistance to the self-employed or small entrepreneurs, and do not make changes to benefits available to those who have lost their jobs. The maximum unemployment benefit remains Ft 64,000 (€180), which can still only be drawn for three months. According to the most recent statistics, the number of job-seekers has increased by 30,000 while 4,000 people per day have lost their jobs since April 1. The number of available jobs has also decreased from 70,000 to 50,000.

Seven percent of adult Hungarians have lost their jobs

The coronavirus crisis has caused 7% of working-age Hungarians to lose their jobs, according to a new poll by Ipsos. 

The less-educated and women are the hardest hit by layoffs: 13% from both demographics have lost their jobs, while 10% of those with a secondary education and those with families have become unemployed. 

The ability to work from home is also heavily affected by education level. Among those with university degrees, 51% are now working from home, while only 8% of those with basic education are able to do so. According to the poll, 40% of Hungarians continue to go to work as normal, 21% are working on a modified schedule, and 31% are working from home.

These data suggest that not only are less-educated and lower-earning workers more likely to lose their jobs due to the crisis, but they are also more exposed to the coronavirus as they must continue going into public places to work and are unable to self-isolate by working from home. 

Karácsony recommends extending curfew restrictions for another month

Budapest Mayor Gergely Karácsony has asked the government to extend by another month the current curfew restrictions which are set to expire on Saturday.

Budapest Mayor Gergely Karácsony at a press conference Wednesday.Fotó: Szigetváry Zsolt/MTI/MTVA

At a joint press conference on Wednesday with the prime minister's office chief of staff Gergely Gulyás, Karácsony said it is the government's task to decide on extending the restrictions, but that the capital would do everything possible to execute its decision. The mayor asked the government to work with municipalities in handling the social and economic crisis caused by the coronavirus pandemic. 

President of the Cities with County Rights Association Károly Szita, who was also present at the press conference, suggested that existing curfew rules could be tightened since the population has become less disciplined in obeying the guidelines.

On Thursday, Viktor Orbán announced that the curfew restrictions will be extended for an indefinite period, and the government will evaluate the need for further extensions on a weekly basis. Orbán said that mayors will be given special authority until midnight on Monday, the end of the long Easter weekend, to impose their own curfew regulations. 

Numerous towns across the country have encouraged non-locals not to visit on Easter weekend. The town of Nagymaros on the Danube bend ordered the total closure of the town to non-locals between 8 am on Friday and 8 pm on Monday. Karácsony ordered the closure of Margit Island, Óbudai Island and Római Part between 8 am and 10 pm on Friday-Monday. 

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