Fidesz treads lightly on budget deficit in election manifesto
Election: Party chances and outlooks
- Fidesz’s hopes of winning a two-thirds majority in Parliament have dimmed as the latest opinion polls show the party is losing ground, while Jobbik is strengthening. If both the mid-sized parties (MSZP and Jobbik) score better than 20% in the regional-list vote and a fourth party (LMP or MDF) makes it into Parliament, Fidesz’s hopes of a supermajority will almost certainly be dashed. But Fidesz is in no danger of winning anything less than an absolute majority, making a coalition government very unlikely.
- Fidesz and its media allies’ campaign against Jobbik has met with little success. It may even have backfired, since Jobbik’s opinion-poll standing has risen to 17-18% among committed voters with party preferences, according to the Medián and Szonda Ipsos polling institutes. The Jobbik camp may also have a number of “hiding voters,” or people who do not declare their voting intentions to pollsters. This happened in the 2009 elections for European Parliament, when Jobbik received nearly 15% of the vote after having polled at around 5%. Jobbik therefore has a significant chance of becoming the second-strongest party in Parliament.
- With the nomination process closed, the MDF has 18 regional party lists out of 20 while the LMP has lists in all regions. This means the LMP has a better chance of passing the 5% threshold for parliamentary representation. The MDF is facing an uphill battle: First, its regional lists must win an average of 5.31% to compensate for the fact that the MDF has no lists in Somogy and Vas counties. Furthermore, the MDF must contend with the widespread perception that it has no chance of making it into parliament following a series of internal conflicts and scandals. Even its core supporters are feeling disillusioned and disaffected.
- The expected voter turnout rate has increased around 5% to 60% as the campaign gets into full swing. A higher-than-expected turnout rate may be detrimental to Fidesz since the disaffected voters are mostly ex-left wingers who will presumably support the MSZP, the MDF and the LMP. Jobbik may also be popular among undecided voters: This is supported by the fact that Jobbik leaders Gábor Vona and Krisztina Morvai are more popular than MSZP prime minister candidate Attila Mesterházy according to the latest Szonda Ipsos poll.
- As Fidesz gets closer to governance, its politicians are becoming more and more cautious when talking about their program. Fidesz’s policy wonks are putting less emphasis on stimulating the economy. This demonstrates Fidesz’s commitment to keeping the budget deficit low, even if the party is unlikely to keep the deficit target of 3.8% of GDP for 2010. Fidesz’s election manifesto is cautious on this question.
- Fidesz will have a tough time convincing the EU that it needs to loosen its deficit goal. EU leaders are afraid of a domino effect – if Hungary wants to loosen the conditions, everyone else will, too. Given the shock over the Greek crisis, the Hungarian economy’s less-than-stellar reputation, and past experience, fears of Hungary falling back into a state of “fiscal alcoholism” would be justified. Fidesz may have an easier time convincing the IMF of the need to loosen the deficit targets contained in its $15.7 billion (€11.5 billion) loan agreement.
- Fidesz has reasonable hopes of bargaining over the deficit. Former National Bank of Hungary Governor Zsigmond Járai, an economist close to Fidesz, recently declared that a 5% GDP deficit would be acceptable for both the IMF and the EU. Given that Fidesz’s “offer” was 7-8% several months ago, we can see a clear tendency toward improvement. And, since serious doubts have arisen about Hungary’s ability to fulfil its 2010 deficit target, 5% may prove quite realistic.
- Even if the IMF and the EU are willing to let Hungary’s deficit rise slightly (8% of GDP is out of the question), the price of their indulgence may be deep and extensive economic reforms – an extremely unappetizing prospect for the next government.
A New System of “Superministries?”
- Fidesz has committed itself to a system of “superministries” that would lodge several of Hungary’s current government ministries under one roof. The program mentions five main areas along with the people who will probably run them: Economy – György Matolcsy; Home Affairs – János Lázár; Healthcare – Imre Pesti; Social Affairs, Miklós Soltész; Chancellery – Tibor Navracsics. The superministry system’s advantage is that it will appeal voters (less bureaucracy) without necessitating large-scale reorganization.
Scandal over Israeli Planes
- The election campaign was hit by a new scandal last week after two Israeli Gulfstream V planes flew through Hungarian airspace. In addition to diplomatic turbulence, the affair has important domestic political consequences:
- The Defense Ministry, National Transport Authority and the Foreign Ministry released contradictory statements about who knew about the flights and who granted permission. This reflects the total chaos in the state bureaucracy before the elections and may deteriorate the image of the Bajnai government before it steps down.
- Fidesz hopes to benefit politically by adding the “Israeli plane” case to its permanent attacks against the government. However, ridiculous claims about a possible Israeli invasion of Hungary will boost support for ultranationalist Jobbik, not Fidesz.
Calendar for the weeks ahead
Election 2010 – The Nomination Process Closes
Five parties managed to get a sufficient number of candidates on the ballot to set up party lists in all of Hungary’s 20 regions (or almost all). The three top contenders – Fidesz-KDNP, the governing Hungarian Socialist Party (MSZP) and the far-right Jobbik party – managed to nominate candidates in all 176 single-member constituencies. In addition, Politics Can Be Different (LMP) is poised to pass the 5% threshold for parliamentary representation. Meanwhile, things are looking grim for the Hungarian Democratic Forum (MDF), which is struggling to reach 5% in opinion polls. The MDF failed to field enough candidates to set up party lists in two counties. That means the party will need to win at least 5.31% of votes in all remaining 18 regions in order to pass the 5% threshold needed to re-enter Parliament. (The MDF scored 5.04% in the 2006 elections and took 5.31% in last year’s vote for European Parliament.)
Although a two-thirds parliamentary majority for Fidesz is still within reach, the ever-strengthening Jobbik party may be able to block it. If Fidesz takes about 48% the vote while Jobbik and the MSZP both win a little more than 20%, Fidesz will have no chance of taking two-thirds. Fidesz’s chances improve if Jobbik and the MSZP underperform, but the party will still need to win almost all the single-member constituencies. The chances of a Fidesz supermajority decrease even further if a fourth or a fifth party makes it past the 5% threshold for parliamentary representation.
Fidesz Prepares for Governance
Fidesz, the all-but-certain winner of Hungary’s April parliamentary elections, has replaced its earlier etatisteconomic program with a pronouncedly pro-market approach. The party, which had been pursuing a strategy of “tactical reticence” in its campaign communications, recently released an election manifesto entitled “The Politics of National Affairs.” Although the program offers little in the way of news and even less in the way of concrete proposals, it is just possible to make out the shape of the next government’s economic policy.
The program lacks any discussion of the additional austerity measures that many analysts say will be necessary. At the same time, it also excludes the kinds of concrete promises that Fidesz has made in previous election campaigns. What remains is a strong pledge to strengthen the economy and create jobs as a matter of priority.
- Fidesz may want to kick-start the economy with a lower forint exchange rate. This idea is supported by two items in the program: The emphasis on export-led growth and the party’s desire to reduce the stock of bank loans denominated in foreign currency. Since nearly 3 million Hungarians have foreign-denominated loans, the weak-forint policy would only be politically viable if Fidesz actually finds a way to “convert” these loans to forint-based credits.
- Hungary’s 2010 budget deficit will be higher than the 3.8% of GDP stipulated in the country’s loan agreement with the International Monetary Fund, but will not reach 8% of GDP as some Fidesz politicians have said. The party will probably be able to negotiate an agreement to let the budget deficit slide to around 5% of GDP. The new deficit target will depend on the outcome of talks with the IMF and the EU.
- Fidesz will only win permission to loosen the deficit target if it promises to see through structural reforms such as freezing spending, overhauling the municipality system or implementing a two-year budget, as has been proposed by the party’s economic policymakers.
Fidesz’s main economic promises and its chances of realizing them
- Tax cuts. While the objective is obvious, the timing, size and methods of lowering taxes remain uncertain. Not even Fidesz knows how much room it will have for maneuver – this largely depends on outside factors such as the IMF, the EU and the general economic climate. Fidesz has supplanted its earlier promises of “immediate, radical tax cuts” with a pledge to reduce business taxes to the levels of other Central European countries within four years. Individuals will have to wait six years.
- Overhauling welfare. This is one of the concrete goals Fidesz sets out in its program. Reforming social spending would mean more money for the budget. But since the number of people entitled to state support in Hungary is relatively high (213,000 in 2008, or more than 2% of the population) this step would entail serious risks.
- Reducing bureaucracy. While a simple majority is enough to cut bureaucracy in the national government, a two-thirds majority is required to change the system of municipal governments. Municipalities represent a mammoth expense. However, Fidesz’s progress in this area may be stymied by the political conflicts that the reorganization will generate, not to mention the inevitable layoffs. It remains to seen whether Fidesz will be able to reconcile its promises of job creation with firing tens of thousands of public-sector workers – a step that would be essential for any kind of real savings to be achieved.
The Curious Renationalization of Malév
Hungary’s government last month bought back a 95% stake in Malév Zrt., the unprofitable national carrier that it had just sold in 2007. The administration paid HUF 25.2 billion (€95.2 million) for the airline, part in cash and the rest in by converting Malév’s debt to the state into shares. Airbridge Zrt., the Russian-owned company that acquired Malév three years ago, will continue to hold a 5% stake, according to a statement on the Hungarian Finance Ministry’s web site.
One beneficiary of the deal will be Russian state-owned development bank Vnesheconombank, which became Malév’s controlling shareholder in 2008 after AirBridge’s parent company went bankrupt. Vnesheconombank gets to unload its stake in Malév in return for a €32 million bank guarantee to Hungary and for swapping the airlines’ “relatively unfavourable” loans for credits that carry lower interest rates.
Hungary’s interest in the deal is much less clear. Some commentators have suggested it is important to save Malév as a symbol of national pride and to ensure that Hungarians will continue to have access to flights all over Europe. At the same time, not three years have elapsed since the state rid itself of Malév so it could conform to EU rules against artificially propping up unprofitable companies. Now, Hungary may be in breach of those very rules. Malév competitor WizzAir Zrt., a Hungarian-Polish low-cost carrier, called the renationalization “outrageous” and asked the European Commission to investigate its legality.
Hungary reckons it can get around the EU ban on state support by implementing a rigorous restructuring plan that aims to make Malév profitable in two years. This involves cutting 23% of jobs at the carrier and reducing operating costs by more than HUF 6 billion annually, according to Hungarian news agency MTI. It is unclear why the outgoing Socialist government would take on such an obligation just weeks before a national election. It is also unclear why Fidesz, set to win an unassailable majority in the April vote, has not raised much of a fuss.
It is entirely possible that Russian business interests are at work behind the scenes. Prime Minister-in-waiting Viktor Orbán has said he would like the Russians to help upgrade the state nuclear power plant near the central Hungarian city of Paks. The Hungarians may feel the need to curry favor with Vnesheconombank ahead of any deal over the Paks renovation.
The Sávoly affair
The scandal surrounding Balatonring, a motorcycle racetrack that is presently under construction in central Hungarian city of Sávoly, has been steadily gaining traction in the past few weeks. The story started two years ago when Spanish real estate developer Sedesa announced plans to build a sports-and-entertainment mega-complex in Sávoly. Preparations halted when the Spanish developer’s financial backing crumbled at the outset of the financial crisis. The project got back on track in the second half of 2009, although in a more modest manner: Plans for a golf course and casino were shelved, leaving only the circuit for the MotoGP racing tournament. The bulk of financing would have come from the state-owned Hungarian Development Bank (MFB), even though accounting company KPMG delivered a scathing evaluation of the business plan and the MFB also sounded doubts on its feasibility. This failed to dissuade the government, which ordered the MFB to provide a HUF 15.3 billion credit facility along with a state guarantee on up to 80% of the loan.
The story’s thread became increasingly tangled thereafter. The government and investors tried to move on with brute force, but opposition to the project strengthened. Newspapers ran articles suggesting that the project had a shady background. Things got so bad that the MotoGP’s organizer decided to seek an alternative venue for the races. This effectively sealed the circuit’s fate.
The government – in theory – could still strong-arm participants into signing contracts, but many lawyers have accused the people involved in Balatonring in connection with fraudulent misuse of funds. It would therefore be a serious misstep to soldier on with the deal.
Rapid gas price correction
On March 15, one of Hungary’s three national holidays, the government changed the formula by which it calculates residential gas prices. The intervention means the average cost is going to rise by less than 10% from April 1 instead of the expected 15% increase.
According to rules, the Hungarian Energy Office is authorized to change its very complicated price-calculation formula in response to events on the world gas market. In this case, it appears campaign motives may have been the main inspiration. Analysts see two reasons behind the fact that gas suppliers did not object: First, suppliers are aware of the risks of a 15% price hike in the middle of a political campaign, only three months after prices jumped 5%. The second reason is that the new formula does not apply to all suppliers.
On the other hand, rapid changes in pricing policy can endanger the safety of supply, since companies may reduce their stocks in the medium-term if new administrative regulations cut into their profits.