25 November 2016
In an interview given to Világgazdaság, Prime Minister Viktor Orbán said that he had spoken on the telephone with the United States president-elect Donald Trump, and there is a good chance that Hungary’s relations with the United States may improve.
All parties concerned have recently signed a comprehensive wage agreement. Did you expect such a swift resolution?
I have always thought that it was reasonable that there should be such an agreement. However, no one ever knew for certain to what extent party politics were influencing interest representations: whether the parties would decide on the basis of economic reason, or political interests. The good news now is that the stakeholders in the Hungarian economy still have common sense. Despite politics, party preferences and turbulent European conditions, as far as I can see their feet are firmly on the ground. Furthermore, everyone knew that one could not gain any more from the present situation. It is also clear that the interest representations have a sense of history – meaning that they remembered what the situation was like in 2010. Back then, if they had been told that six years’ later there would be such an agreement, everyone would have laughed. At the time, the talk was mainly about the collapse of the economy. The basis of this agreement is that the Hungarians are able to work more, and to higher standards. They also believe that they don’t always need to look for loopholes in the system, and a way of life which is based on work is preferable to one which relies on handouts and benefits. Six years ago even hardworking people could see that one could make a better living by bending the rules and shrewdly exploiting the welfare benefits and family support system. It was from that starting point that we had to reach the world of a work-based society. The most important message of the agreement now signed is that in Hungary work is financially worthwhile.
Can we say that with this we have started catching up with wages in the EU?
I’ve never regarded EU wages as the benchmark. Experts and fellow politicians constantly measure everything against wages in the other Member States. In my opinion they mean very little. Of course, they are seen as relevant, because it is thought that many Hungarians go abroad to work because of this – but this is only partly true. People around here will always come and go, because Hungary has become part of the common EU labour market. In 1989, at the age of 26, I went to England with a child in a carry-cot to study and work, having received a ridiculously small scholarship grant. Young people cannot be held back, and should not be held back. Those with the courage should go, and they should be supported so that they can see the world. It is important, however, that in the background there is always a country to which they can return. So I don’t believe that the sole explanation for these decisions is the difference between European and Hungarian wages. Neither can these things be measured in monetary terms. To cite just a few examples, in Hungary public security, GMO-free food production and the fact our country has not experienced mass immigration are all priceless: these things cannot be readily converted into forints, but can only be expressed in terms of the quality of life. If in a few years’ time the results of our health promotion investments begin to emerge, and the cycle routes and other recreational developments are completed, Hungary will be one of the countries with the best quality of life. I will only regard my own and my Government’s work as successful if members of the lower middle class can be assisted towards success, and if the doors are also opened to groups at the lowest levels in society, to provide them with the opportunity of joining the middle class.
Does this agreement mean that we lose the competitive advantage of lower wages?
It is widely thought that Hungary’s competitive advantage comes from low wages. I don’t think this is the case. The reason that wages have not been higher in Hungary has been that there was no economic growth, and there was no improvement in efficiency. Competitive wages require competitive businesses, or else businesses will have to close. It is not just a historical fact, but also an economic fact that Hungary is a one-thousand-year-old state with forms of government which have always been in the mainstream of the Western world, except for the period of the communist experiment. We are at the heart of Europe: in other words, Hungary is not only crossed by military routes, but also by trade routes. And out of this a government must create precious capital – through the development of its infrastructure, for example. But when we speak about competitiveness, what happens in the work place is not the only thing that matters. Ours is a country of culture, and it is able to provide good opportunities also outside working hours. Finally, one of the most important factors as far as competitiveness is concerned is for Hungary to be able to supply electricity to economic stakeholders more cheaply than other, Western European, states. I am a committed supporter of the Paks nuclear power development, because it will supply just that. We should also take account of the fact that our entire region will gain in status, and the role of the V4 will increase within the European Union. Consequently our goal should no longer be just to stay afloat, but we can start expanding, growing and investing. Our wider region is the natural terrain for Hungarian businesses, and therefore our economic diplomacy will also need to focus on that.
Should we be concerned about pensions because they have been left out of the agreement? Will there be a new system for calculation of pensions?
We have come to an agreement with pensioners in order to preserve the real value of their pensions. This undertaking has been honoured – and, indeed, exceeded – inasmuch as they have grown in real value. Naturally, we know that the lives of the elderly are not easy. The debate over what kind of new calculation system we should have will last some years; it has already begun in professional circles, and I encourage its continuation. At this point in time, however, the limits of the pension system cannot be stretched. What we can do is reduce living costs, and a major part in this is played by the reduction in the rate of Value Added Tax. Thanks to the wage agreement now concluded, I also had the opportunity to propose that next year pensions increase by 1.6 per cent instead of 0.9 per cent. We shall see whether we can perhaps consider some additional one-off payment as well; we have yet to explore this issue.
Small businesses in Hungary are concerned about how they can fund the wage increase. What will happen to them?
I think there will be a little surprise here, because we shall suddenly see that the reason many businesses have not exceeded the 500 million-forint tax threshold is that they wanted to pay tax at the lower rate. This is not a criticism, as tax optimisation exists everywhere in the world. With the uniform tax rate, however, this trick will no longer be required. For businesses with one or two employees, doubling of the flat-rate taxation threshold could bring about major improvement.
Is there any scope left for a reduction in personal income tax?
Reducing personal income tax to below ten per cent – to nine per cent – has long been close to my heart. If this could be achieved I would consider it one of the great moments in my life, and I did ask the Finance Minister to consider it. He said, however, that “you can’t have everything”– and regretfully I had to agree with him on this. You cannot reduce corporation tax, work-related contributions and personal income tax all at once, while the minimum wage and pensions must be increased together. So the intention is there, but implementation will depend on performance over the next few years.
After signing the agreement you said that another one will be needed. What exactly did you have in mind?
We are on the verge of a new era – as is the whole world. In five years’ time industry as we know it today will no longer be the same. The vocational training we are conducting today will become worthless in a couple of years’ time. A global race has begun which will decide who can most rapidly adapt their economies and societies to the new challenges of the digitalisation era. The wage increase which is happening now lays the foundations for the starting point, but we still haven’t answered the question. So, despite the fact that we can view the agreement as historic, I would ask everyone to curb their enthusiasm, as the very fact that a centre-right government has managed to do this is just of specialist interest. But let me repeat: this is only the starting point of a path on which we hope Hungary will find its place during the current challenges.
Will Hungary’s position change as a result of the United States electing a new president?
I now know a little more than can be deduced from the news reports. I spoke with the President-elect on the telephone, and so I can say that our position has improved significantly. Donald Trump has made it clear that he thinks highly of Hungary. My impression was that he knows that the Hungarian people is a brave, freedom-fighting nation, which has achieved outstanding economic results over the past six years. He invited me to Washington, and in reply I told him that I haven’t been there for a long time, as they had treated me as a black sheep. He laughed at this, and said that he knows the feeling. I believe that with Donald Trump, America will now have a president who is not ideologically hidebound; he is an open man, and is far more interested in success, efficiency and results than in political theories. This is to our advantage, as the facts are on our side. Up to now economic cooperation has been sound, and the only obstacles were related to ideology.