Socialist woes in Hungary

Prognosis

 

Imbalance of forces

 

• With 10 weeks to go until Hungary’s general elections, opinion polls show the opposition Fidesz party with three times as many dedicated voters as the governing Hungarian Socialist Party (MSZP). Fidesz appears to have a decent chance of winning a two-thirds supermajority – and with it, the power to amend Hungary’s Constitution singlehandedly. The MSZP can prevent Fidesz from accomplishing this feat by winning at least 30 out of the 176 mandates in single-member constituencies. At the moment, that seems rather unlikely: The MSZP and its core supporters are looking demoralized, disaffected and disorganized.

• Fidesz, MSZP and the ultra right-wing Jobbik party appear certain to make it into the next parliament. If the Hungarian Democratic Forum (MDF) succeeds in collecting enough nomination slips to get its candidates on the ballot, it also has good chance of making it in. (The MDF’s candidate for prime minister, Lajos Bokros is just as popular among Socialist voters as the Socialists’ own candidate, Attila Mesterházy). The MDF is currently negotiating with the Alliance of Free Democrats (SZDSZ) about including some of its candidates on the MDF list. This is a risky strategy, as the SZDSZ is in total disarray and may damage the MDF’s credibility.

 

The Constitutional Court Abolishes of the Residential Property Tax

 

• The Constitutional Court ruled January 26 that Hungary’s tax on residential real estate is unconstitutional. The unanimous decision represents a blow to the government of Prime Minister Gordon Bajnai and a trap for his Socialist Party. If the Bajnai government simply ignores the lost tax revenue, it will lose credibility; if it imposes new austerity measures to compensate for the shortfall, the Socialists’ popularity may slip even further. At the same time, the ruling may also pose a disadvantage for Fidesz should it win next April’s elections: Party leaders had promised to abolish the property tax to symbolically mark a “new era” in economic policy. (The tax was never expected to generate much revenue for the budget, anyway.)

 

Fidesz kills its own reform plans

 

• Fidesz’s former (and possibly future) Finance Minister Mihály Varga fired up a controversy by suggesting that Hungary might reform should its pension system along the lines Sweden’s retirement model. The MSZP is sure to keep this issue on the front burner: Pensioners make up the bulk of the formerly Socialist voters who are now undecided. The MSZP will try to spook them with stories of Fidesz’s plans to decrease pension payments and raise the retirement age.

• Although Fidesz denies plans to overhaul pensions, it has a better chance of implementing retirement reforms than the Socialists do. Fidesz’s core voters are working-age people who are more open to the necessity for reforms than pensioners.

• The problem with Fidesz’s declared-then-withdrawn pension plan is that it may prove counterproductive in the long term. Fidesz’s leaders are so desperate to keep the party’s sky-high popularity that they avoid talking about any policy plans that may be unpopular. This may make governance difficult after April, when the party will have to make tough spending choices. This dilemma is illustrated by the case of László Mádi, whom Fidesz fired after he mooted the idea of a real-estate taxe at a local party meeting. Now, the party will find it extremely difficult to introduce property taxes once it is in power.

 

Corruption Scandals and Arrests – the Day of Reckoning Begins?

 

• The arrest of former Budapest Transport Company (BKV) chief Attila Antal may be the beginning of a wave of corruption-related prosecutions against the heads of publicly owned companies and Socialist politicians. Overwhelming circumstantial evidence indicates that Hungarian officials have long used state- and municipality-owned companies to funnel money into political campaigns, as well as into their cronies’ pockets. With Antal in detention, police and prosecutors are likely to find more persons of interest at the BKV. The scandals will clearly weaken the MSZP, the largest party in the Budapest city assembly, and benefit Fidesz. Miklós Hagyó former deputy mayor responsible for BKV was forced to relinquish his MP candidacy by his own party.

• Fidesz is floating the idea of charging Prime Minister Ferenc Gyurcsány and former Finance Minister János Veres in connection with covering up the severity of Hungary’s budget deficit ahead of the 2006 elections. The idea of prosecuting Gyurcsány and Veres in relation to criminal concealment of public data is nothing new: It first surfaced in autumn 2006, when the media got hold of a recording of Gyurcsány’s “Öszöd speech,” an expletive-laden rant in which the premier admitted to lying about the state of the economy in order to win votes. The reason the topic is being recycled now is because Prime Minister Bajnai’s opponents want to accuse him, too, of covering up the state of the economy. That way, when Fidesz is in government, it can blame the higher-than-expected budget deficit on its predecessor. At the very least, they will be able tell their supporters that the reason they are unable to fulfill their campaign promises is because the budget is in much worse shape than they had been led to believe.

 

Analyst consent

 

 

 

 

 

Calendar for the weeks ahead

 

 

Economic events

 

 

 

 

Political events

 

 

 

 

Leading Trends

 

 

Real Estate Tax Annulled – A Slap for the Government

 

The Constitutional Court ruled that the Bajnai government’s tax on residential real estate is unconstitutional and annulled the tax retroactively to January 1, 2010, the date the tax went into effect. The court rejected the bill on technical grounds: The law made taxpayers responsible for determining the commercial value of their property even though the average taxpayer lacks expertise in real-estate valuations. Without the involvement of a state assessor, the difference in value estimates could be as high as 40%, the justices said.

 

The Finance Ministry had expected the tax to contribute HUF 50 billion (€185.2 million) to state coffers this year. The government will now have to restructure the budget if it wants to keep its deficit target at 3.8% of GDP – a feat that will already require iron-willed discipline.

 

The loss of revenue from the real-estate tax may push up the deficit by as much as 0.3%. Moreover, there are several other risks threatening the fulfillment of deficit goals. The European Commission has praised Hungary (along with Latvia, Lithuania and Malta) for combatting its budget deficit, but also warned Hungary that it may be overestimating future tax revenues when making its deficit projections.

 

 

Populist Politicians, Pensioners and Swedish Models

 

The debate over the future of the pension system will be a focal point of the election campaign. Former Fidesz Finance Minister Mihály Varga kicked off the debate in early January when he spoke about the possibility of Hungary adopting Sweden’s model of pensions in an interview with the weekly Figyelő. The Swedish system involves minimizing budgetary contributions, raising the retirement age and decreasing pension payments.

 

When Varga’s ideas proved controversial, the MSZP went into attack mode and Fidesz began backpedalling. The pension nflap signals that the parties have begun competing for the votes of pensioners, regarded as the largest and most dedicated voter bloc. Both Fidesz and the MSZP intend to use direct marketing to brand each other as “the enemy of pensioners.” This reveals how simple-minded the political debate has become: The introduction of the Swedish model, or any other model, will affect future generations, not those who are presently retired.

 

Fidesz is keeping tight-lipped about their pension plans, saying the party is “not thinking in introducing any model” while warning that the Socialists want to “privatize pensions.” The MSZP is firing back with claims that Fidesz’s Swedish model will force anyone over 50 to keep working until they are 70 and will also cut funds for people who are currently retired.

 

 

 

Budapest Public-Transport Scandal May Snare City Hall Leaders

 

Police have detained former Budapest Transport Company (BKV) chief Attila Antal on charges of corporate malfeasance. According to the charges, Antal authorized a 10 million-forint (€36,800) study on transforming Budapest’s Metro 1 into a luxury subway line. The research was totally unnecessary and also failed to meet professional standards, according to the charges. In a separate incident during Antal’s tenure, the BKV paid 19.2 million forints to a contractor to review its stock of photocopy machines, according to the charges. (Records of the company, Optimismo Kft., have since disappeared from the Budapest Company Court). Investigators are also reviewing the legality of severance pay packages for 110 former BKV employees and are questioning the rationale behind 144 consultancy contracts.

 

The waves generated by the BKV scandal reached Budapest city hall in 2009. They were the primary force behind the breakup of the city council coalition between Mayor Gábor Demszky’s Alliance of Free Democrats (SZDSZ) and the Hungarian Socialist Party (MSZP) last autumn. It has long been an open secret that political groups have been using city-owned companies such as BKV as their own personal bank tellers. This means criminal charges may now be in the offing for city politicians. Trouble is also brewing in party politics: Former Deputy Mayor Miklós Hagyó, who was responsible for overseeing the BKV, was forced to stand down as an MSZP candidate for Parliament on February 2. Once a heavyweight in the MSZP's Budapest organization, Hagyó's career is now in tatters.

 

The still-unfolding story of the blatant abuses of power at the BKV may drive the Socialists’ support to new depths, both in the capital and beyond. The MSZP’s position will collapse even further should more skeletons may fall out of the closet between now and election day. The trouble is unlikely to disappear once the Bajnai government steps down this spring: Fidesz, the opposition party that is all but certain to win the April elections, is demanding that Hungary’s leaders be “called to account.” Once in office, they will need to point the finger at the responsible parties – especially since they are likely to abandon their campaign promises and will need a diversion. It is therefore quite possible that Socialist politicians will face criminal charges following the change of government.

 

 

The Great 258: Absolute Power Looms for Fidesz

 

 

Party preferences in January 2010

 

 

 

The opposition Fidesz party has attained such dizzying heights of popularity that many observers think voters may hand the party a two-thirds majority in Parliament this April – and with it, the power to amend Hungary’s Constitution.

 

Analysts who dare to predict the number of seats a party will win usually get burned. The electoral system is exceedingly complex: Hungary has 176 electoral districts in which individual candidates compete against each other for seats in parliament. Voters pick an additional 210 representatives through a system of regional and national party-list voting. This opaque system is a forecaster’s nightmare. However, if we make some broad assumptions, it is possible to determine whether Fidesz has a credible chance of winning 258 of the 386 seats in Parliament – the magic number needed for a two-thirds supermajority.

 

The first consideration is how well Fidesz performs in the regional-list voting. Most polls indicate that Fidesz has about three times as many voters as the MSZP (Fidesz beat the MSZP by a factor of 3.25 in the 2009 elections for European Parliament.) Let’s assume Fidesz wins 57-60% of the vote, the MSZP scores 19-20% and Jobbik takes at least 12-13%. The number of regional-list mandates Fidesz wins depends on how many smaller parties pass the 5% threshold for entry to Parliament. The Hungarian Democratic Forum (MDF) stands a good chance; Politics Can Be Different (LMP) can’t be ruled out. It also depends on the percentage of votes cast for parties that do not make it past the 5% threshold, and the regional distribution of voter turnout.

 

Depending on these variables, Fidesz will need to win anywhere between 145 and 155 individual mandates to reach the magic 258. Given Fidesz’s extreme opinion-poll advantage, the party could conceivably make a clean sweep of all 176 constituencies – especially since individual candidates need only a plurality of votes to win in the second round. Fidesz can lose as many as 20 races in individual constituencies without endangering its supermajority. Unless party preferences shift significantly, two-thirds is within reach.

 

The main risk for Fidesz is that its supporters will become overconfident and not bother to cast ballots. Ironically, this danger becomes greater if Fidesz wins big in the first round, because their supporters may think there’s not much at stake in the second round.

 

 

Two possible scenarios for a two-thirds majority for Fidesz

 

Scenario I

 

 

145-151 individual victories

 

 

Scenario II

 

 

149-155 individual victories