Quick fix just first step: Simor
The measures underway to consolidate the budget are considerable, but should only be regarded as the first step - this was the message of the talk given by National Bank of Hungary (MNB) Governor András Simor last Thursday at an event organised by SwissCham. Above all, Simor stressed the need for far-reaching structural reforms.
Simor was keen to stress that there was and is no alternative to the budget consolidation programme introduced by the Gyurcsány government. “Without the package of measures the deficit would have jumped to around 11% last year,” he said.
Nevertheless, Simor was critical, arguing that it is not inevitable for budget consolidation to entail a significant slowdown in economic growth and a rise in inflation: “There are examples of countries that have consolidated their budgets without these effects.” He described it as “unfortunate” that inflation has been deliberately forced up by extensive tax hikes and subsidy cuts: “While inflation is not under control, the national bank cannot do much for economic growth,” he said. “In Hun ary we are not dealing with an everyday situation right now. Normally, the rise in inflation results in a stimulation of growth. In such a situation the central bank could then take a restrictive monetary course with an easier conscience.”
Simor is confident, however, about this year’s deficit target. Whilst the government is anticipating a deficit of 6.8% by the end of the year in accordance with the convergence plan, he believes that a deficit of around 6% is achievable, but is less certain than he once was. In his view how the government will react to a different revenue situation in terms of its spending policy is too unpredictable.
Simor views the 2008 budget submitted by the government as “realistic”. He takes the same view of the deficit target of around 4% in 2008. When it comes to the short term there are no major differences of opinion between the government and the central bank, stressed Simor, indirectly recalling the era of his predecessor whose relationship to the government was anything but harmonious. The current relative consensus on key questions and estimates is above all a result of the now realistic course taken by the government: “The stance of the Hungarian National Bank has not changed in recent years.”
As far as the medium-term is concerned however, the words of Simor implied that there are certain differences of opinion. The MNB Governor regards attainment of the
He also believes that continuation of subsidy reductions is essential – even when it comes to politically sensitive gas prices: “Forty per cent of Hungarian families currently benefit from subsidised gas prices. I don’t believe that today 40% of Hungarian families are really in such great need.” He also called for structural reforms in healthcare (“still too inefficient”), local governments (“in a small country like Hungary 3,200 finance offices is far too many”), the pension system (“it is absurd that in Hungary more people claim a disabled pension than there are disabled people”), education (“it needs to be adapted more to the needs of the economy”) and social spending (“proportionately we spend one per cent more of GDP on this than the other Visegrád countries. That’s too much”).