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Vértes: the government gambles off the money and the trust

András Vértes, head of GKI (Economic Research Institute) says Hungary’s poor performance is mostly the result of the government’s wrong-headed economic policy. The nationalization of the private pension funds’, the extremely high ‘crisis taxes’ and the uncalculated tax cuts have together led to the failure of the government’s economic policy.The consequences are clear: there are no investments in the most competitive sectors because of the crisis taxes, the credit market is frozen and the most affected companies try to pass their burden onto the consumers. Not even the small and medium enterprises can boost the domestic market. The people are highly indebted so the recovery cannot be built on their consumption, as the government had previously planned. According to András Vértes the Orbán administration gambled off the money and the trust quickly, but not everything is lost. A strong shift in the attitude is needed in order to keep the budget deficit below 3% and to achieve real economic growth. First, they should start negotiation with international organizations, especially with the previously ‘kicked out’ IMF. The government should apply for a precautionary debt pact at IMF in order to strengthen the trust towards Hungary and to reduce the investors’ risk. (The pact does not mean a compulsory use of the debt; it would be just an emergency tool.)All the crisis taxes should be withdrawn. The special tax put on communication sector has to be abolished immediately as it also contravenes EU regulations. If that was done, the EU would finish the inquiry launched because of the Hungarian special taxes. The special bank tax could be cut back at those banks which do not reduce their credit activity. The mostly foreign owned banks are not interested in increasing their credit activity, as their profit is gone on special taxes and on increasing reserves. The budget’s revenue side should be sorted out first of all with the abolition of the flat income tax system and the launch of an estate tax. The expenses could be controlled if they did not try to end all the PPP projects and if they stopped the prestige projects. The Orbán administration sees these steps as demolishing their own achievements so it will not be an easy going reform.András Vértes highlighted it is time to return to the sober economic policy. Populism leads nowhere.

Last Updated on Friday, 30 August 2013 09:11

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