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These are mostly just well-formulated guidelines
Viktor Zsiday summarized for the index. The investment specialist did not want to go into detail, as we can only really talk about guidelines, but said there are overlaps with the central bank’s previous 330-point package, which sets long-term goals (and proposals) for 2030. The The basic objective of these proposals was for Hungary’s development to reach “80-90 percent” of the Austrian level by 2030. According to Zsiday, it is a much more elaborate and specific package compared to the 50 points just announced, but the latter urges immediate action. Most Hungarian economists agreed with a significant part of the points in the previous package, which focused mainly on competitiveness.
The central bank announced 50 proposals Tuesday to address the economic effects of the coronavirus epidemic; details of the proposals can be found on the MNB website. The 50 points cover a total of nine areas:
- labor market proposals,
- suggestions for the family,
- housing market proposals and housing creation,
- general and specific measures to recover demand,
- proposals related to the financial system,
- increase public investment, FDI and companies,
- proposals for a green economy,
- accelerate digitization,
- daily organization of life and economy.
Viktor Zsiday believes that the bigger question now is how the legislative work will map this out. “Without going into that, I see that a good professional job is being done in the MNB, there is a well-intentioned guideline that sometimes deviates from the government line. What will become of this is still a long way off. “ Said the economist.
Under fire, the PM
According to Péter Virovácz, senior analyst at ING Bank, it is extremely interesting that lately
everyone has a good word for ministry.
Now the MNB has made proposals that we would not necessarily have expected from the central bank. And a few days ago, the president of the State Audit Office (SAO), László Domokos, urged tax cuts: One of the government’s old big plans is a single-digit personal income tax. According to Domokos, a PIT reduction of one percent will cost 170 billion HUF, “In other words, we are talking about a tax cut of approximately one billion guilders. That would be the case of the almost four and a half million people who work legally ”.
According to Virovácz, now to see that everyone wants to get involved in the work of the Ministry of Finance. It can also be a reading that
decision making is a bit slow, the ministry does not seem like a quick response unit.
Of course, it is always easier to speak from the outside, according to the analyst, and it is very easy to score 50 points for an organization that does not control the budget; the ministry should also take into account what, for example, 50 position.
Discipline is needed
Dávid Németh, a senior analyst at K&H Bank, also agreed that “the directions are basically good,” but he also pointed out that this would not be the MNB’s job either. On the other hand, on the other hand, there must be financial discipline, budgetary discipline, because if it weren’t for it, the deficit would disappear, and with it the public debt, which would later affect the central bank. and price stability must be maintained by the central bank, so here, in their opinion, cooperation should be sought, the middle ground.
In the current situation, however, much higher budget spending could be expected. Virovácz warned that
it also has long-term costs: higher deficits and public debt.
However, if we spend more now, it will be accompanied by a more restrictive economic policy in the future. “So what we give now must be taken away later, that is, we take it away from long-term growth, from economic performance.” – said the macroanalyst, adding that it is necessary to find a very delicate balance.
Overall, none of the analysts Index interviewed saw any big surprises in the show’s points.
In addition to the credit relief, which has perhaps the greatest direct impact, tax cuts have of course also been included. “The number of taxes in Hungary is still high, the tax system is still complicated” Virovácz said. Reduce red tape, tax rates, and tax burdens are always on the scene. The analyst highlighted that the tax wedge is still high in Hungary: the difference between net wages and the super gross paid by companies is still in the center of Europe, despite the reduction in prices in recent years;
Regarding the stimulus to investment, the central bank still expected growth in June, when everyone already expected a drop in GDP this year, and emphasized in its inflation report that this could be sustained if investment recovers, public investment will be shoot and support growth greatly. They stayed behind. Therefore, it is not surprising that these 50 points also address such a widespread investment incentive, which is obviously also important because it can provide the economy with long-term growth potential, as investments do not just increase returns. economic in a given year, but in a good case. either they increase efficiency, which is accompanied by technological development, or they create jobs, which means additional wages, additional employment, and therefore additional demand in the economy.
It’s like we’ve seen this somewhere
All three analysts emphasized that there is a lot of overlap with the previously announced 330-point package. Virovácz noted that
In the current 50 points, it is mainly the ideas that apply to the present that are filtered.
These 50 points have to do with the fact that they must be taken now and immediately to boost the performance of the economy, unlike the competitiveness package, which has a long-term perspective.
It is also worth going back here to the measures announced by Finance Minister Mihály Varga these days: although this package, if we can consider it, contained details, it was mainly about cutting red tape, and it is unlikely that we will get out of the hole thanks to these measures.
Now we are selling it as crisis management, but basically they are measures to improve competitiveness. Packages that will not necessarily help today’s economy
Virovácz emphasized. According to him, this may have been one of the driving forces behind the fact that the MNB came up with proposals that could have an immediate effect.
At the same time, these proposals cannot be immediately transposed into laws or regulations; Obviously, this is not the task of the MNB either, since most of them are formulated in general terms. The macroanalyst also said that this is precisely why they are “good for opinion”, but do not necessarily fit into the mainstream of current economic policy, that is, specific measures. Even during the crisis, the Hungarian economic policy continuously worked with specific measures, from the credit default to taxi drivers and the relief of small taxpayers.
These were all specific fine mechanics interventions, compared to which the central bank has now put a very large package of proposals on the table, encompassing many things and obviously having a very high cost, that the budget may not be able to finance. .
“They are very good ideas, only very difficult to put into practice in current economic policy” – Virovácz stressed, adding that this is definitely a good start for the debate, but it is not certain that anything will come of it. Also, market participants are already eager for the “real” announcement, and if this announcement was really what Varga announced recently, then according to the analyst, there will be very few, “the Hungarian economy is not helped.”
How much will it cost?
Regarding the previously announced package promised for the fall, Virovácz said it could be a HUF 500 billion program: there is still a lot of room for maneuver in the budget, with a deficit of 7-9 percent. According to him, “one or two of the central bank’s points could be cut on this 500 billion budget.” Because, in total, the 50 points of the MNB can be measured in billions of billions, depending, for example, on where the line is drawn when investment is encouraged.
According to Németh, the budgetary impact of the proposals can be measured in at least hundreds of billions, but can reach up to a billion forints. All the points, he said, would only be feasible if the resources were available indefinitely, otherwise it would be necessary to distinguish between what is feasible, what has the greatest added value and what will help the recovery the most.
We need to see when it is worth what we spend now. If you don’t give the economy more than once, it doesn’t make much sense
Said the analyst. On the other hand, if the economy could embark on a higher growth trajectory, a higher value-added trajectory, it could recoup these expenses, reduce public debt later, and so on; These background studies can now be done in full swing. The resources allocated to crisis management measures are also highly influenced by how long the deficit and debt will be released this year and next; There are already figures and deficit targets for this year, but it is not yet known where next year’s spending will stop.
We also asked the Ministry of Finance about the central bank’s proposals, and as soon as they respond, we will update our article.
(Top Image: György Matolcsy, Governor of Magyar Nemzeti Bank (MNB) at the central bank building on April 16, 2020.
MTI / Zsolt Szigetváry)
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