A new Hungarian campaign program: MDF's plans

MDF came out with its program (actually, "Material for Discussion") with the catchy title "Munka és méltóság = Modern Magyarország (Work and Dignity = Modern Hungary), a nice alliteration in mathematical form. As one of the commentators said, it could just as well have been called "Critical Mass of Reforms," but that title was already taken by Lajos Bokros when he introduced his lengthy plan for necessary economic and social reforms in Élet és Irodalom (January 23, 2009). In any case, Bokros's name often appears in the footnotes.

The authors of the twenty-seven-page document don't promise anything. Instead they declare their intentions which, as Lajos Bokros admitted at his press conference yesterday, "not everybody will like." I would venture to say that very few people will like it, especially since the document clearly states that the party's aim is "the strengthening of the entrepreneurs, the middle classes, and employees with skills."

According to the MDF program "government expenses must be substantially reduced." At present there are 3,200 functioning local governments, each with a mayor and a staff. Instead, MDF is suggesting 240-280 "járási" government bodies. Járás (district or in German Bezirk) was the name of smaller units within the counties, and they existed for centuries until 1983. The origin of the word most likely has something to do with the verb "járni" meaning "to walk." Prior to 1919-1920 there were 442 járások, after that their number was around 150. These districts could encompass seventy or more villages that share a common council that would include representatives from each village situated within the járás. A reduction in the inordinate number of self-governing units has been talked about a lot, but because changing the current system required a two-thirds majority in the House nothing could be done.

MDF would restore the Ministry of Interior that would handle only matters of public order and public administration. The prosecutor's office would be subordinated to the Ministry of Justice. Both suggestions would be a welcome move, at least from my vantage point. There would be a ministry that would be called the Ministry of Education and Labor whose responsibility would be to devise a school system that would serve the needs of the labor market.

Fidesz's hobby horse is the maintenance of every village school even if the number of students is very small; the education in these schools is low level and expensive. MDF has different ideas much closer to the plans of the government, especially during the tenure of Bálint Magyar (SZDSZ) as minister of education. MDF would not maintain schools where the number of children doesn't reach at least 160 to 220; each class would also have to enroll at least 25 students.

Currently, people earning minimal wages pay no income tax. The result is that there are most likely many people who actually earn more than that under the counter but officially they receive minimal wage required by law. MDF would tax minimal wages as well. It wouldn't be very high, only ten percent, but it would not be worth hiding income for the sake of a tax-free status.

VAT at the moment on most items is 25% which according to the ideas of MDF is too high: the highest VAT should be no more than 20%, but the minimum 5% VAT put on a few selected items should be raised to 10%.

Child support, as MDF's Erzsébet Pusztai already announced, should no longer go to the families but to the schools that would provide all-day care for children. I wrote about her ideas extensively in "Government assistance and family support" on July 29, 2009.

According to MDF the rate of employment which is very low at the moment (55% of people of working age) should be raised by 10%. We learn nothing about how this is going to be accomplished from the document, but the authors mention that the creation of jobs shouldn't be done by direct state intervention because "jobs created by the state don't create growth, they retard it."

As far as economic growth is concerned, MDF would like to see a steady growth in the GDP of 3% per annum. The deficit should be lower than 3%, but a deadline to achieve this level is not given. As far as the national debt is concerned, MDF wants to decrease it to 40% of the GDP. At present it is 80%. MDF would like to create an economic situation such that Hungary could join the eurozone as soon as possible.

At the moment there are 77 institutions of higher learning in the country. That is far too high and in many of them the level of instruction is very low. Their diplomas are useless on the market place. According to MDF 20-25 universities and and half a dozen independent colleges would be plenty. I agree, but can you imagine the resistance of staff and students?

MDF openly and without hesitation, unlike Fidesz, stands by the Swedish model of pensions. MDF supports a property tax but not in its present form, which was hammered out as a compromise measure and makes very little sense. As of January 1, people with real estate valued at less than 30 million forints pay nothing. If the property, according to its owner's assessment, is worth more than 30 million then he has to pay property tax. There are so many things wrong with this system that they cannot be detailed here. In any case, MDF prefers a system that taxes all property, buildings as well as land; these taxes would be collected by the local governments for their own benefit. Considering that Hungarians think that property tax is outrageous as is, I assume that the outcry would be considerable.

As far as healthcare is concerned, the program doesn't go into any detail but brings back SZDSZ's old idea of establishing private insurance funds. The program advocates a reorganization of the healthcare system. MDF wants to reform the police force and free it from political influence. The number of policemen should be increased in such a way that every hamlet should have its own police force.

MDF "accepts modern capitalism ... as the only economic system that ensures continuous growth and the well being of the population." Assistance given to the needy can come only from accumulated wealth, and therefore MDF is convinced that the best social policy is the kind that goes hand in hand with economic growth. In MDF's opinion that economic growth is generated by people who are actively engaged in production. Such continuous growth will produce "a smoothly working, peaceful democracy.

This is all very rational but I don't think that one can win an election with it.

Comments

[Mark]

Even I would concede that some of the ideas in here are sensible, but as a whole I don't think it offers any more of a coherent answer to Hungary's problems than Jobbik's programme.

"Currently, people earning minimal wages pay no income tax. The result is that there are most likely many people who actually earn more than that under the counter but officially they receive minimal wage required by law. MDF would tax minimal wages as well. It wouldn't be very high, only ten percent, but it would not be worth hiding income for the sake of a tax-free status."

This proposal will firstly fail to have the stated effect. The tax free minimum wage was introduced under Medgyessy. For one to accept that its abolition would lead people to declare their taxes, one has to ask whether people declared their incomes when some income earned under the minimum wage was taxed. Is there any evidence that tax declaration and collection was any better before 2002? Because if there isn't, I don't see how anyone can argue it will work. Furthermore, one ought to think about the economic effects. Poorer people tend to spend more on local goods and services, and especially on locally produced goods than the rich. By taxing this group more the MDF would effectively reduce the demand for goods and services produced by enterprises most likely to create local jobs. This would be a disaster.

"According to MDF the rate of employment which is very low at the moment (55% of people of working age) should be raised by 10%. We learn nothing about how this is going to be accomplished from the document, but the authors mention that the creation of jobs shouldn't be done by direct state intervention because "jobs created by the state don't create growth, they retard it.""

The last statement is economically illiterate and I am surprised that any trained economist would lend their name to it. It is true that for jobs growth to be sustainable they have to be eventually produced through increased economic activity in the private sector, but looking at the depressed state of the labour market generally, and in the regions where they have to have an effect on the employment rate, it is naive to believe that much will be achieved without some form of stimulus from the budget. And I don't think the private sector will be able to create many jobs at the current HUF/EUR exchange rate, which is in contradiction with the aim of joining the Euro.

"As far as economic growth is concerned, MDF would like to see a steady growth in the GDP of 3% per annum. The deficit should be lower than 3%, but a deadline to achieve this level is not given. As far as the national debt is concerned, MDF wants to decrease it to 40% of the GDP."

If they are serious about reducing the debt at the 80% level without rescheduling, or restructure then Hungary needs growth of 4-4.5% per annum. The only ways in which they can reduce debt further than is through a major privatization programme - but I doubt there is enough they can sell to make a serious difference that would allow them to pay down the debt at 3% growth. Furthermore, 3% growth for Hungary given the current prognoses of the economy internationally is actually pretty optimistic. So, the question must be, when the financial markets realise that the growth Hungary can produce is insufficient to pay down the debt what will the MDF do to reassure the financial markets? This isn't a question just for the MDF - but for all Hungarian parties except Jobbik (whose answer in demanding a renegotiation is actually the only coherent one on the table at the moment).

Bokros may say that not everyone will like his party's programme, and he is probably right, but not even they are telling people the truth about the real nature of the mess.

[whoever]

I'm a bit baffled by the interpretation of "modern capitalism" - as there is a lot of debate about what kind of capitalism is preferable. This debate extends right around the world, and has become an increasingly contentious issue in many prosperous, settled, liberal democracies.

From the look of this, Bokros thinks "modern capitalism" equates to the shock therapy as applied in the 1990s: for others, modern capitalism uses a mixture of supply- and demand- side levers, to try and ensure beneficial results. I disagree with Eva, this is not a rational programme: it's voodoo economics, stuffed with mistaken assumptions about international trends and credit availability.

It's not to say that markets never work. Slashing higher education, as is referred to here, might not be the best way to produce a highly skilled workforce. As we know, if the government opts out of its responsibilities for education, nothing else is going to step in and entirely fill this role. Perhaps in these institutions, the teaching quality and the subjects are not relevant - but that is another issue.

And its another issue, whether education itself should be "subservient" to the needs of the current labour market. Not only should education be valued for itself, but I suspect that given the rapid nature of technological change, any attempt to tailor education to currently available work will result in a muffed attempt to hit a rapidly moving target. Unless we are talking of McSchools for McJobs.

So whilst some of these ideas represent at least an attempt to wrestle with the real budgetary situation, I'd argue from a policy perspective, as well as a financial perspective, they are mainly wide of the mark.

[Right]

MDF is a pragmatist party without political ideas and ideologies.